Wind Energy Versus Natural Gas in Latvia: Policy Evaluation With a System Dynamic Simulation

Abstract

To achieve national target proposed by the Renewable Energy Source Directive 2009/28/EC, to also accomplish to the CO2 emission reduction targets and to decrease the energy dependency Latvian government is planning to adopt different strategy policies such as feed-in tariffs (FITs) and capital subsidies, in order to incentive investor to use renewable based technology for power production Neverthelss it is crucial to understand in long term perspective the effect and the costs of a specific policy (made even by the combination of different policy tools) applied to the energy sector. Using this model, or an extended version of it, a cost/benefit analysis of a different set of policy scenarios can be carried out. More in specific this study is driving its attention at a situation where it is possible to increase the share of wind power in the energy balance respect the use of natural gas as primary energy for power generation. Four political instruments are chosen in this model: subsidies for construction of new wind-power facilities, information package at all power supply levels for risk reduction and reduction of maintenance costs through a learning effect. The simulation period is from 2010 to 2110. The analysis of policy instruments for development of renewable energy resources in power system illustrates wide potential of system dynamic modelling use for statement of priorities on power diversification. The policy instrument of use of subsidies is a crucial priority. Feed-in tariff is not providing an evident. The reason of that can be related to the key aspect on the way Latvia is organizing its feed-in tariff policy.