Model-Based Approach to Assess the Future Economic Viability of Power Plants Through Expected Producer Revenues and Costs

Assessing the economic viability of power plants is an essential precondition to correctly analyse the resource adequacy of the future power system, especially in the context of the energy transition. EU legislative initiatives like Fit-for-55 and REPowerEU, are expected to significantly increase the share of renewables over the coming years. Since these sources have lower variable costs, renewables are gradually reducing the existing thermal units running hours without affecting the energy price. The intensification of this phenomenon will lead to a progressive decrease of their profit margins, hence increasing the risk of thermal capacity being decommissioned for economic reasons. This paper shows a novel methodology to assess the economic performance of generators based on expected producer revenues and costs. It was adopted for the Italian Resource Adequacy Assessment of 2023, and the results indicate a significantly higher decommissioning compared to the approach implemented in the European Resource Adequacy Assessment of 2023, which takes the perspective of a central planner with perfect foresight that minimizes the total system costs.