An investigation of renewable certificates policy in Swedish electricity industry using an integrated system dynamics model

Energy policy has a vital impact on the investment in renewable energy capacities and on the decommissioning of traditional ones. Currently Sweden and Norway aim to expand the renewable electricity production by 26.4 TWh between 2012 and 2020, and subsequently to reduce CO2 emissions. To achieve this, the Swedish Energy Agency issues to renewable producers electricity certificates, which are sold on an open market to increase revenues. Meanwhile, the electricity is priced based on a marginal cost principle, and the price is highly reliant on the capacity profile and energy balance in the system, and consequently on the expanding and decommissioning decisions. The above price issues, together with the intermittent availability of renewable energy sources and the uncertainty of future fuel costs, will significantly affect the economic performance of the electricity producers. It is only after understanding the interaction of those factors that we can define companies' business models for achieving a sustainable development in the electricity sector. This study applies a system dynamics approach and presents a model to integrate both strategic decisions such as capacity expansion/decommission, and operational features such as randomness and seasonal factors in electricity production. The model highlights the complex and nonlinear interaction of important factors in the electricity sector. The study results indicate that the energy policy should not be introduced in an isolated manner, but rather need to incorporate the incentives of renewables with other decisions such as nuclear decommission. Additionally, this study predicts an upcoming increase in electricity price, as well as a more volatile price after the capacity profile has been changed and dominated by hydro, biomass and wind. This study provides guidelines for policy makers and managers to make better-informed decisions for a healthy development of their businesses as well as of the entire electricity sector.