Carbon Price and Wind Power Support in Denmark

Abstract

This paper aims at characterizing the conditions of wind power deployment in order to infer a carbon price level that would provide wind power with comparable advantage over fossil fuel technologies as effective wind support policies. The analysis is conducted on Danish data from 2000 to 2010, i.e. after market liberalization took place in 2000. Probit technique is used to analyze the connection of new turbines to the grid each month and tobit analysis is employed on the additional capacity installed monthly. I find that the level and type of the support policy are the dominant drivers of deployment. Electricity price impact is not visible. The investment cost impact is not significant either, but the effect of the interest rate, although not visible in the probit analysis, is significant in the tobit analysis. The number of turbines already installed, that is taken as a proxy for the sites availability, does not have any significant effect either. A feed-in tariff significantly brings more wind power in than a premium policy. The fact that the support policy is a feed-in tariff rather than a premium increases the additional capacity installed monthly by up to several tens MW. The additional capacity installed monthly increases by up to thousand kW for each additional e/MWh of support. If the policy is a premium, I find that 24 e/MWh of support in addition to electricity price is needed to observe the connection of new turbines to the grid with a 0.5 probability. I convert this support level into a carbon price of 28 e/ton if wind power competes with coal, and 50 e/t if it competes with gas.