Cost-effective production of non-fossil energies in the Swedish electricity system including external effects and uncertainty

Abstract: The objective of this study is to calculate the cost-effective production of non-fossil energies in the Swedish electricity system, considering external effects and uncertainty. The study includes eight non-fossil energy sources in Sweden. For each energy source a unique marginal cost function is assessed, including production costs, external cost and uncertainty based on data from previous studies and publications. Four different models are created: A standard model excluding externalities, a model including externalities, a probabilistic model excluding externalities and a probabilistic model including externalities. The results show that the cost-effective mix of 150TWh is achieved at a total production cost of 58.3 billion SEK. The model finds the cost of externalities to be 7.1 billion SEK and the cost of uncertainty to about 1.7 billion SEK respectively. In all four models, large-scale hydro, nuclear power and onshore wind are included to their full capacity. None of the models have solar PV and wave energy as part of the cost-effective mix. Biomass, offshore wind and small scale hydro are included to a varying extent in the different models. When comparing the results of the four different models the differences in outcome are rather small. However, there are a number of significant findings that may contribute to guidelines for Swedish policy making. Among the discussed implications are: The most effective way to drive down total electricity cost, the role of solar PV incentives and the cost associated with a decommissioning of nuclear power.