Business case uncertainty of power plants in future energy systems with wind power. (February 2016)

• Record Type: Journal Article
• Authors: Brouwer, Anne Sjoerd; van den Broek, Machteld; Özdemir, Özge; Koutstaal, Paul; Faaij, André
• Is Part Of: Energy policy. Volume 89(2016)
• Page Start: 237
• Page End: 256
• Publication Date: 2016-02
• Subjects: CCS Carbon capture and storage -- EU European union -- FO&M Fixed operation and maintenance -- GIS Geographic information system -- GT Gas turbine -- IDC Interest during construction -- IEA International energy agency -- iRES Intermittent renewable energy sources -- LCOE Levelized cost of electricity -- LP Linear programming -- MIP Mixed integer programming -- NG Natural gas -- NGCC Natural gas combined cycle -- NGCC–CCS Natural gas combined cycle with CCS -- NL The Netherlands -- NPV Net present value -- PI Profitability index -- PC Pulverized coal -- PC–CCS Pulverized coal with CCS -- TCR Total capital requirement -- TOC Total overnight costs -- UCED Unit commitment and economic dispatch -- VO&M Variable operation and maintenance; Monte-Carlo analysis -- Power system simulation -- Business case -- Thermal power plant -- Wind power; Energy policy -- Periodicals; Politique énergétique -- Périodiques; Electronic journals; 333.79
• DOI: 10.1016/j.enpol.2015.11.022
• Languages: English
• ISSNs: 0301-4215

Abstract

Abstract: The European power sector is transforming due to climate policies and an increased deployment of intermittent RES. The sector will require thermal power plants for the decades to come, but their business cases are (negatively) affected by this transformation. This study presents a novel tool to quantify the effect of policy, price and project-related uncertainties on power plant business cases. This tool can support policymakers in stimulating necessary investments in new thermal generation capacity. We find that these investments are currently unsound (power plants recoup on average –12% to 59% of their initial investment). Future climate policy, i.e. the CO2 price, has a very strong impact on business cases (affects the profitability by 5–40%-points). The impact of the deployment of wind power is average (2–8%-point difference between 10% and 21% wind penetration). Variations in annual wind power production barely affect the profitability (variation of ±1%-point). To stimulate new investments, policymakers should first decrease the uncertainty in business cases caused by policy. Durable climate policy is especially important. Also, policies to increase the profits of thermal power plants should be carefully considered and implemented. This combined approach will reduce the revenue gap that needs to be bridged by supportive policies. Highlights: The operation of thermal power plants is affected by CO2 prices and wind power. A new tool quantifies the effect of their uncertainty on power plant profitability. New power plants are unprofitable and show a large spread in expected profits. Uncertain future climate policy is a key factor in all business cases (±56% change). Increasing wind power penetration (10–21%) decreases profitability by 14%.