Welfare effects of technology-based climate policies in liberalized electricity markets: seeing beyond total system cost

Sophie Maire,Philippe Thalmann,Frank Vöhringer

doi:10.1186/s41937-019-0039-1

Sophie Maire, Philippe Thalmann + Show 1 more

Open Access

https://doi.org/10.1186/s41937-019-0039-1

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Abstract

This paper is a contribution to assessing the Swiss energy transition, with an emphasis on the consequences of decommissioning the nuclear power plants for the electricity market and the whole economy. We expect that increased renewable generation and demand-side policies of the type already envisioned will not suffice to close the supply gap, so that Switzerland will have to rely on more imports of electricity, moving away from the export surpluses realized almost every year since 1910. As this reference scenario is contrary to desired energy security, a policy scenario is proposed in which net electricity trade is constrained to balance over the year and the supply gap is closed by relaxing the existing restrictions on gas-fired power plants. One constraint replaces another one, so that the impacts are not obvious. Furthermore, the prices of electricity and natural gas evolve quite differently through time and depend on climate and energy policy. We use a modeling framework coupling a detailed representation of electricity generation and an encompassing representation of the macro-economy to compare these scenarios in terms of both total system cost and welfare. Both indicators favor the reference scenario without gas-fired power plants in spite of its higher marginal costs for electricity. The welfare loss of the policy scenario is small, though, much smaller than the increase in total system cost. This shows that a coupled bottom-up top-down modeling framework assessing the welfare effect of policies can yield very different results from those of an energy system model assessing their impact on total system cost.

Highlights

This paper is a contribution to assessing the Swiss energy transition, like the other articles in this special issue, but with a different focus
Its emphasis is on the consequences for the electricity market and the whole economy of decommissioning the nuclear power plants
We use this framework to simulate two scenarios for the replacement of the decommissioned nuclear power plants, inspired by the supply options of the Energy Perspectives: (1) a reference scenario that maintains the restrictions on gas-fired power plants and accepts large net electricity imports, and (2) a policy scenario that lifts the restrictions on gas-fired power plants and bans net electricity imports

Summary

Introduction

This paper is a contribution to assessing the Swiss energy transition, like the other articles in this special issue, but with a different focus. Other studies used CGE models, with the electricity generation production function modified to yield discrete technological responses (Böhringer, Wickart, & Müller, 2003; Bretschger & Zhang, 2017) They are able to analyze the effects on welfare (Hicks equivalent variation) and the economy as a whole, as well as changes in the overall excess burden of the tax system. GENESwIS sends back endogenous electricity demands and factor and intermediate input prices variation due to general equilibrium effects We use this framework to simulate two scenarios for the replacement of the decommissioned nuclear power plants, inspired by the supply options of the Energy Perspectives: (1) a reference scenario that maintains the restrictions on gas-fired power plants and accepts large net electricity imports, and (2) a policy scenario that lifts the restrictions on gas-fired power plants and bans net electricity imports. The paper is organized as follows: Section 2 presents the ELECTRA-CH framework, Section 3 describes the scenarios, Section 4 discusses the results, and Section 5 concludes

Modeling framework

CROSSTEM-CH to GENESwIS—input shares and wholesale electricity price

Results

Conclusion