The influence of continued reductions in renewable energy cost on the European electricity system

Abstract

In the recent years, variable renewable energy (VRE) technologies – most importantly solar photovoltaics and wind power – have undergone a remarkable transformation from niche technologies to increasingly competitive energy suppliers. As the potential for VRE is distributed unevenly across Europe, a Europe-wide cost optimal expansion of VRE will lead to different national and regional expansion rates of VRE. To facilitate such a Europe-wide cost optimal expansion of VRE a fair cost distribution among all European countries is needed. Therefore, we analyse and discuss how expected future decreases in investment costs for selected VRE (photovoltaics, concentrated solar power, wind onshore, and wind offshore) will affect the pan-European and national electricity systems. This is done by comparing three cost scenarios with a reference case, calculated using a European electricity system model. Our results show that the assumed cost reductions lead to an especially pronounced increase of PV distributed unevenly across Europe. In addition, higher shares of VRE show the effect of shifting electricity exchange patterns throughout Europe which also reduce cost benefits for economies of electricity exporting countries. Hence, there might be a lack of agreement in Europe about where and how to expand and integrate VRE if costs of expanding and integrating VRE are not distributed in a fair way between the European countries. In addition, these possible barriers of expanding VRE Europe-wide in a cost-optimal way might hinder the exploitation of cost synergies or even slow down VRE expansion on a European scale.