Chapter 8 - Generation Portfolio Analysis for a Carbon Constrained and Uncertain Future

Abstract

This chapter presents high-level analysis of how the generation portfolio on the all-Ireland system may evolve by 2020. Portfolios were assessed in relation to the issues surrounding the reduction of CO2 emissions and the exposure of fuel price shocks. Analysis suggested that fully reflecting the cost of carbon in the marketplace was important in terms of signaling for the appropriate generation capacity in the long term. It is suggested that the integration of wind energy is the main route to increasing renewable energy and decreasing emissions in the all-Ireland system. Reflecting the cost of carbon in the marketplace is important for wind generation but it is essential that other issues are also addressed. Many modern electricity systems are faced with the challenge of reducing greenhouse gas emissions and dealing with increasing and more volatile fuel prices. Adequately dealing with these issues requires the evolution of suitable generation portfolios. However, doubts remain over whether the liberalized marketplace will deliver such portfolios. Analysis is undertaken to try to determine how the generation portfolio on the all-Ireland system may evolve by 2020. Resulting portfolios are examined with respect to the impact of carbon costs on the portfolio development and, in particular, wind energy. An assessment is made of the exposure of the portfolios to fuel price volatility and how portfolios may be diversified to avoid this. The analysis tries to gain insight into future generation portfolios with the aim of informing how policy instruments may be tailored to address these issues.