As long as the EU Emissions Trading System generates prices below 60 EUR/tonne of CO2, it is unlikely to provide for a stable growth of variable renewable energy technologies. This is due to the fact that those technologies face long-run revenue risks; given the merit order effect, they cannibalize the wholesale market prices from which they derive revenues.
An approach to energy policy which relies exclusively on the ETS (ETS-only) will increase the risk premiums and capital costs of renewable energy deployment. Alternative policy frameworks that impose less risk on investors will reduce the cost of capital.
If risks are kept sufficiently low through the choice of a suitable policy framework, onshore wind and utility-scale solar PV are cost-competitive with conventional electricity generation technologies in power markets assessing a CO2 emissions price of 25 EUR/tonne.
Renewable energy targets and national renewable support schemes will help to address risk barriers for deploying renewable technologies and will reduce the costs for those technologies, relative to an ETS-only support system.
Autor: Matthias Deutsch, Frank Peter (Prognos AG), Andree S. Gerken (Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft)
Typ: Discussion paper
Tags: CO2, energy efficiency