Description:
Policymakers misjudge results of technology-rich optimization models with high spatial and temporal resolutions because such models specify investment cost differently and thus are not equally sensitive to changing financing cost and discount rates. We apply an intertemporally optimizing power market model to analyze three different investment cost specifications. The three specifications lead to a substantially different pace and rate of adoption for specific generation technologies and diverging carbon prices. The first assumes that an investment is financed by equity only, the second one applies a mix of equity and debt, and the third one assumes debt financing only. The equity specification is completely insensitive to changing financing cost, fosters early wind power deployment, and finally yields the lowest carbon prices. The mixed capital one is extremely sensitive to changing financing cost and postpones wind power deployment towards later periods. The debt specification is also insensitive to changing discount rates and in general yields the lowest investments and the highest carbon prices