The Effect of Ratio-based Incentive on Wind Capacity Development and Investment Risk of Wind Units: A System Dynamics Approach

Different capacity incentives like feed-in-tariff have been considered to encourage companies to invest in wind power units. One of the main challenges of the electricity market policymakers is the determination of this fixed payment based on limited funding in a way that the investment cost of wind units is compensated and the associated investment risk is reduced. The main contribution of this paper is the introduction of a method to manage the amount of payment or incentives during a time horizon to reach the targeted wind capacity and reduce its investment risk. In this regard, the ratio-based incentive is introduced. To study the effects of such a policy, the long-term behavior of the electricity market is simulated by a dynamic model, which is a useful tool for policymakers to analyze the effects of their policies. Then, conditional value at risk and value at risk concepts are used to measure the risk of wind capacity investment. The results illustrate that the ratio-based incentive is more effective than the feed-in-tariff in the context of decreasing the risk of investment, reducing total CO2 production, electricity price reduction, and speed of providing higher amounts of wind capacity.