Nyhet | 2015-07-09 | 10:48

Technology and volume uncertainty in the Swedish-Norwegian TGC system

Master's thesis by Wilhelm Löwing and Henrik Berg, Industrial Economics at Kungliga Tekniska Högskolan.

Supervisor at Vattenfall: Tobias Nylander.

Summary

The global emission of greenhouse gases is perceived as one of the most prominent threats to the world today and a socio-technological transformation of the energy industry is considered essential for long term sustainability. Organisations decisions' to participate in the diffusion of renewable energy sources of electricity production is deemed essential for achieving the transformation. Governments have therefore introduced support systems promoting renewable sources of electricity production, and since 2003 a tradable green certificate system has been used to support increased diffusion. However, there are a number of uncertainties regarding investments in onshore wind power which may, or may not demotivate investors to take further part in the diffusion of the technology. Understanding the magnitude and impact of uncertainties is of interest as they can act as barriers for achieving socio-technological transformation. This thesis contributes to the understanding of uncertainties in the Swedish-Norwegian TGC system by exploring two groups of uncertainties; technology uncertainty and volume uncertainty.

Evaluation of the technology and volume uncertainty in the Swedish-Norwegian TGC system has been performed by statistically investigating the relationship between technological development of onshore wind power and the certificate price, as well as the accumulated surplus of certificates and the certificate price. The surplus of certificates accumulated on the Swedish-Norwegian TGC market has also been tracked to its source of origin. In addition, the financial effect on previous onshore wind power investments has been estimated. The data has been validated by interviews with Swedish wind power investors.

The results indicate that both the technology development of onshore wind power in Sweden and the accumulated surplus on the market have impacted the price of certificates, and thus also the profitability of investors in the system. The technology development of onshore wind power has been difficult to forecast, resulting in a considerable technology uncertainty perceived by investors. Regarding volume uncertainty, of the total accumulated surplus of certificates at the end of 2014, 70 % can be derived from forecast errors of quota obliged electricity production by the Swedish Energy Agency. In addition, there is a possible relationship between lower costs of onshore wind power and the accumulated surplus of certificates on the Swedish-Norwegian TGC market.

The major policy implication of these uncertainties is that previous investors choose to delay or refrain from further onshore wind power investments. If actors choose not to participate in further diffusion of the technology, this could potentially harm the socio-technological transformation of the energy industry in Sweden. Introduction of long term contracts, more frequent quota adjustments and a record of RES-E investment decisions could potentially reduce the uncertainties perceived by investors.