Investments in liberalised power markets: Gas turbine investment opportunities in the Nordic power system

There is considerable uncertainty in the Nordic electricity system with respect to long-term development in production capacity. The process towards liberalisation of the electricity sector started with a situation of a large capacity margin, which is gradually vanishing. Since potential investors in new production capacity are unaccustomed with investments under the new regime, it is unknown if and when investments will take place. The purpose of this paper is to analyze if and when investors choose to invest in new production capacity depending on their existing portfolio of power producing units. Electricity price scenarios generated with a partial equilibrium model of the Nordic power system are combined with a model of investment decisions. In this, various scenarios for the development in key parameters such as CO2 emission permit price and development in installed wind power capacity are used to investigate the consequences for investments in a natural gas fired power plant. The main result of the analysis is that new investments are highly sensitive to investors existing power production portfolio, as new production units compete with the existing power plants.