EL AÑO EN QUE INICIA LA GUERRA TOTAL EN COLOMBIA 1984

The modelling analysis backs up the theory that in- creased wind power capacities will reduce power pric- es in the future European power market system. It has been estimated that if wind power capacity in- creases by 200 GW in 2020 (reaching a total of 265 GW), this would give a merit order effect of €10.8 / MWh, reducing the average wholesale power price lev- el from €85.8/MWh to €75/MWh.

However, this figure assumes a fully functioning market. It also includes the long-term investments forecast and is therefore based on the long-term market equilibrium. Simulated generation volumes in 2020 require economic feasibility with regards to long run marginal costs. Wind capacity replaces the least cost efficient conventional capacities so that the system is in equilibrium. This shift in the

technology mix is the main reason for the observed merit order effect.

In reality this might not always happen. Power market bids are based on short run marginal costs, plants that are not cost efficient might be needed in extreme situations, for example when there is a lot of wind power on the system. The short-term effects of wind power are mostly related to the variability of wind pow- er. The responding price volatility due to increased wind power stresses the cost efficiency of wind power generation. And in the real world, this would lead to a smaller merit order effect than analysed in the future optimal market equilibrium.

Consequently, the results of the study have to be considered carefully, especially considering the as- sumed future capacity mix, which includes a lot of

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Moreover, the study estimates the volume merit order effect referring to the total savings brought about due to wind power penetration during a particular year. As- suming that the entire power demand is purchased at the marginal cost of production, the overall volume of the MOE has been calculated at €41.7 billion/year. But this should not be seen as a purely socio-eco- nomic benefit. A certain volume of this is redistributed from producer to consumer because decreased prices mean less income for power producers. Currently, only the long-term marginal generation which is replaced by wind has a real economic benefit, and this should be contrasted to the public support for extended wind power generation.

The scenarios were developed so that the modelling analysis could show the effect of the additional wind capacities on future power prices. For this reason, the main difference between the two scenarios is the amount of wind capacity. All other renewable sources and capacities have been kept at 2008 levels in both scenarios. Hence, there is no future capacity increase assumed for bio-energy, solar or geothermal energy re- sources. This, however, does not reflect a very real- istic market development. A higher renewable share would influence the abatement costs to reach the de-

fined CO2 emissions cap. Indirectly, this would also

influence investment decisions in conventional fossil- based technologies, especially in the Reference sce- narios. However, it is difficult to estimate the outcome on the merit order effect. Lower emission levels and hence lower carbon prices might also lead to coal pow- er becoming more cost-efficient. This might counteract

es (gas, coal and oil) are increased by 25%. In the High fuel price case, wind power makes the power price drop from €87.7/MWh in the Reference scenar- io to €75/MWh in the Wind scenario. Comparing the resulting merit order effect in the High fuel case of €12.7/MWh to the Base case results of €10.8/MWh, the 25% higher fuel price case gives a merit order ef- fect that is 17.5% higher.

The study showed that fuel prices have a major influ- ence on power prices and marginal cost levels. The merit order effect has been mostly explained by the difference in the technology capacity and generation mix in the various scenarios, especially the differenc- es in the development and utilisation of coal and gas power technologies. Investigating fuel price differenc- es is therefore highly relevant. However, even stronger impacts on the merit order effect might be observed by changing the relative price differences of gas and coal price levels.

The study proved that carbon market assumptions and especially the resulting carbon price level will be a very important variable for the future power market and its price levels. Regarding the sensitivity of the as- sumed GHG emissions reduction target, the analysis illustrated higher equilibrium prices for the 30% reduc- tion case than for the 20% reduction base case. However, the results of the sensitivity analysis do very much depend on the assumptions for future abate- ment potential and costs in all EU ETS sectors, as well as in the industrial sectors.

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7.1 Assumptions in the model

Fuel prices

Fuel prices and other input factors such as efficiency are important for the Classic Carbon model in that they determine the cost of electricity, and also af- fect how power systems will look in the future. In this chapter, we outline the most important supply side assumptions in the model, and their effect on future capacity.

Fuel price assumptions for both scenarios in the mod- el year 2020 are outlined below in Table 10.