Low-carbon investments from the perspective of electric utilities: The burden of the past

Abstract

Within the Paris agreement, Europe has adopted ambitious climate targets. Achieving these targets through appropriate low-carbon investments is thus key. This study aims at providing new insight into this issue by considering the DNE21 + model, an optimization model that assesses global energy systems, and the Investment Preference Index model, a simulation model where decision-making is based on technology preferences from a utility's perspective. We evaluate the impact of a climate-policy scenario on the European electricity sector using these models with harmonized assumptions. The resulting investment choices provide insight into the effectiveness of a low-carbon investment policy. We find that various types of incentives are required before companies abandon their historical preferences and low-carbon technologies can flourish. Testing various options has revealed that a negative constraint on coal is more efficient than adding further positive incentives for low-carbon technologies (such as carbon pricing and support schemes). However, we also expect these preferences to shift over time.