Thermal Power Plant Economics and Variable Renewable Energies

Thermal Power Plant Economics and Variable Renewable Energies
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Edition: 2014
38 pages

Thermal power plants in Europe have recently suffered from a sharp drop in their income. One of the reasons may be the fast deployment of variable renewable sources such as wind and solar PV which brought about a decrease in power prices. This paper analyses the economics of existing thermal power stations under increasing shares of variable renewable energies in Germany, according to national expansion targets up to 2025.

The findings confirm the negative impact of high shares of wind and PV on the profitability of thermal power stations, even though this effect may be counterbalanced by the evolution of other market parameters.

Although most plants can still earn their variable and annual fixed costs and thus are not in danger of being retired prematurely, the fact that new plants cannot recover their investment expenditure implies that power generators have no incentive to invest in new reliable capacity under the current market circumstances. There is no urgent need for action, but policy-makers should carefully monitor the profitability of thermal generation and make sure there is a sufficient amount of reliability capacity in the system.