Economic disruptions in long-term energy scenarios – Implications for designing energy policy

Abstract

The main drivers of the transformation processes affecting electricity markets stem from climate policies and changing economic environments. In order to analyse the respective developments, modelling approaches regularly rely on multiple structural and parametric simplifications. For example, discontinuities in economic development (e.g., business cycles) are frequently disregarded. The distorting effects caused by such simplifications tend to scale up as the time horizons of such analyses increase, and can significantly affect the accuracy of long-term projections. In this study, we include information on economic discontinuities and elaborate on their influences. Based on historical data, we identify the impact of changes in economic parameters and examine their cumulative effect on the German electricity market by applying a techno-economic electricity market model for the period from 2005 to 2014. Similar changes may occur repeatedly in the future, and we expect that a more comprehensive understanding of their effects will increase the validity of long-term scenario assessments. Although dynamic developments have taken place in the past, their effects on such scenarios are regularly ignored. Results indicate that policy decision-making based on modelling frameworks can benefit from a in-depth understanding of the underlying simplifications made in most scenario studies.