Promotion of Market Access for Renewable Energy in the Nordic Power Markets

Abstract

Emissions trading systems for non-renewable and Feed-In Tariffs for renewable energy sources are currently widely in use. This study investigates how renewable targets for the Nordic power market might be achieved at the lowest possible costs. The instruments investigated are Feed-In Tariffs (two varieties), shadow-prices for CO2 emissions, (through Emission Trading Scheme (ETS)), increased penetration of Real-Time Pricing into electricity markets and an increased price-elasticity of demand for electric power. We use a simulation model of the Nordic Power market to reach the results. Our simulations show that even with strong assumptions concerning Real-Time Pricing combined with current emissions trading system no wind power emerges in the market without Feed-In Tariffs. Our results show that from the studied instruments the most cost efficient way to reach the targets of wind energy market shares is the economically sound opportunity cost based Feed-In Tariff. We show that this tariff is at the same time the most cost efficient way to reduce carbon dioxide emissions.

Keywords: Feed-in Tariff, Real-Time Pricing, Renewable Energy

JEL Classification: D24, D50, L11, Q28, Q41, Q52, Q53