In order to assess the separate contribution of gas and coal prices, the price changes were simulated individually, meaning that when high coal prices are assessed, the gas price is kept constant, and so for the rest of the sensitivities. This approach is different from simulating a consistent set of prices, e.g. based on a different WEO scenario (Current Policies, New Policies, 450 ppm). It could be argued that fuel prices are linked and they are substitutes goods, so that a change in the price of one fuel would cause a variation in the others. Nonetheless, in this analysis the specific effect of the single fuel prices in the market value of wind and the absolute value gap is assessed.
The price reference of the base set of scenarios is the 450ppm scenario of WEO15 [77]. In the sensitivity, the high price level for both fuels is chosen according to
Current Policies of WEO15, while the low price level is chosen so that the reduction
of price has the same magnitude of the increase in the high case. The resultant prices are shown in Figure 10.2 and Table 10.2.
Figure 10.2: Visualization of fuel price sensitivities levels.
Coal prices
Results for the coal price sensitivity are presented here. Both the difference in the investments due to high/low coal price and effect on price duration curves and value of wind are assessed.
Chapter 10. Sensitivity analysis
Low Base High
Coal Price [e/GJ] 1,3 2,4 3,5
Variation [%] -45% - 45%
Gas Price [e/GJ] 4,7 7,2 9,7
Variation [%] -35% - 35%
Table 10.2: Fuel price change in the sensitivity scenarios.
Effect on the investments As showed in Figure 10.3, an increase in coal prices of 45% (correspondent to Current Policy scneario of WEO), reduces the coal capacity across all the modelled region by 20 GW in Sp400 and 22 GW in Sp200 if compared to the base scenarios. Lignite and Fuel oil capacities are decreased as well. On the other hand, gas capacity is increased by roughly 24 GW in both SP scenarios, in order to substitute the decommissioned coal.
If the price of coal decreases by 45% with respect to the base scenarios, the effect on the installed capacity is much less sensible. Indeed, many countries have restrictions on coal investments. The small increase in natural gas in the low coal price scenario is related to these regulations: in countries where limitations to coal investments are present (such as Germany, Denmark and UK), some coal plants are decommissioned because not competitive and the natural gas replace those.
Figure 10.3: Variations of fossil fuel installed capacity driven by higher/lower
coal price, compared to respective Base scenarios.
It has to be pointed out that when considering only Germany, the reduction of coal capacity is not balanced by increased gas investment, but most probably covered by additional imports.
Effect on prices and wind value The resultant hourly dispatch is affected both by the different system configuration and by the fuel price itself. Figure 10.4 show the effect on the price duration curve for DE-NW of higher prices (black) and lower prices (blue) with respect to the base case (yellow). Both Sp400 (solid lines) and Sp200 (dotted lines) are displayed.
In general terms, it can be noted that the most pronounced effect is in the central part of the price duration curve, where coal is price setting. Moreover, lower coal prices tend to increase the steepness on the left part of the graph (hours 1000-3000). The reason for the increased steepness is the larger difference across marginal prices of gas and coal.
One thing to note is that an increase in the slope of price duration curve during high price hours increases the volume of the merit-order effect in Sp200. The mechanism is the following. A lower coal price reduces the marginal cost of coal plants resulting in a steeper supply curve, due to a larger difference to gas marginal price. As a consequence of the steepness, even the small increase of wind generation at higher prices is shifting the supply curve to right and drive a price reduction. This slightly reduces the value of Sp200.
Figure 10.4: Change in the price duration curve of DE-NW with higher/lower
coal prices, for scenarios Sp400 (solid) and Sp200 (dotted). Lower prices are shown in blue and higher prices in black.
Figure 10.5: Change of VFs (left axis) and absolute value gap (right axis) for
different coal prices.
The effect on the value of wind and the value gap is shown in Figure 10.5. In general terms, value factors are not largely affected by the change in coal price. However, there is a tendency towards higher value factors as the coal price increases. At the same time, it can be noted that the absolute gap is slightly decreasing, therefore
Chapter 10. Sensitivity analysis
Sp400 is getting comparatively more valuable than Sp200.
Gas prices
Effect on the investments System results for gas sensitivity are displayed in Figure 10.6. Low gas price causes higher investment in gas and larger decommis- sioning of coal, lignite and oil compared to the base scenarios. Natural gas plants tend to become somehow a substitute for coal ones.
High gas price affects the system to a lower extent, due to the aforementioned limi- tations in coal investments, little more coal is installed compared to base and lower natural gas capacity.
Figure 10.6: Variations of fossil fuel installed capacity driven by higher/lower
gas price, compared to respective base scenarios.
Effect on prices and wind value As can be seen in Figure 10.7, the major effect on the duration curve is a price increase in the 2000-3000 hours with the higher price, i.e. when gas is setting the price.
Figure 10.7: Change in the price duration curve of DE-NW with higher/lower
gas prices, for scenarios Sp400 (solid) and Sp200 (dotted). Lower prices are shown in blue and higher prices in black.
Increasing gas price cause the curve to become steeper in correspondence to gas marginal cost, while a lower fuel cost tend to flatten it. This is due both to a higher difference with coal price and to the effect of the different efficiency of gas plants, which is more marked with a higher fuel price. Similarly to what described for coal, this causes a more marked merit-order effect in the market, reducing the price of Sp200.
This effect ultimately leads to a reduction of the benefit of lower specific power, since the price they see at low wind production is lower compared to higher SP. The effect on the VF and the absolute gap is shown in Figure 10.8. Value factor for both Sp200 and Sp400 slightly decreases with higher gas prices. This is related to the fact that a higher gas price affects average electricity prices more than market value, since wind power does not have a large production during those hours. Since the value for Sp200 is reduced more compared to Sp400, the absolute value gap decreases with higher gas prices similarly to the case of coal sensitivity.
Figure 10.8: Relative change of VFs (left axis) and absolute value gap (right
axis) for different gas prices.