A Framework for Modeling the Dynamics of Power Markets – The EU-REGEN Model

The long-run development of power markets will be deeply affected by the gradual substitution of fossil fuel-based generation technologies by renewable energy technologies (RES). However, the intermittent supply of RES, in combination with the temporal non-homogeneity of electricity demand, limits the competitiveness of renewable energies (Joskow, 2011). We develop a partial-equilibrium model of the European power market that contributes with a framework for capturing the temporal and spatial variability of RES. Furthermore, we differentiate wind and solar technologies by different quality classes and contribute with a routine for using meteorological data to approximate the temporal availability of renewable energy technologies. The composite of all these RES features allows then for a detailed representation of RES and their implicit substitution elasticity with fossil fuel-based technologies. Our results for the long-run electricity generation path of the European power market show that, under an 80% CO2 emissions reduction scenario until 2050, renewable energy technologies become the main technologies that will meet the demand. The 2050 generation share of wind and solar power combined is around 40%. However, with the detailed depiction of their temporal and spatial characteristics, we identify that gas power is necessary as a complement to compensate for their intermittent supply, which requires in turn the utilization of carbon capture and storage to adhere to the climate target.