The economics of renewable energy support

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper uses theoretical and numerical economic equilibrium models to examine optimal renewable energy (RE) support policies for wind and solar resources in the presence of a carbon externality associated with the use of fossil fuels. We emphasize three main issues for policy design: the heterogeneity of intermittent natural resources, budget-neutral financing rules, and incentives for carbon mitigation. We find that differentiated subsidies for wind and solar, while being optimal, only yield negligible efficiency gains. Policies with smart financing of RE subsidies which either relax budget neutrality or use "polluter-pays-the-price" financing in the context of budget-neutral schemes can, however, approximate socially optimal outcomes. Our analysis suggests that optimally designed RE support policies do not necessarily have to be viewed as a costly second-best option when carbon pricing is unavailable. (JEL Q28, Q42, Q52, Q58, C61).

How to design renewable energy support policies with imperfect carbon pricing?

“…For cleanenergy electricity generation companies, i r stands for carbonfree technologies (wind, PV, etc.). Each technology cannot produce more than its available capacity in any period of time (Abrell et al, 2019):…”

“…In a perfectly competitive market, no company will be hindered from entering or leaving the market, and no seller or buyer can determine the price, which meets Pareto optimality. In the equilibrium model, the production costs and benefits of electricity generators determine the production of each technology i (Abrell al., 2019). For fossil fuel technologies:…”

“…Therefore, policymakers should focus on social welfare maximization. The social welfare function is as follows (Lecuyer and Quirion, 2016;Abrell et al, 2019):…”

“…Later, we obtained data about China's social cost of carbon (Ricke et al, 2018;Tianet al, 2019). Last, the production cost functions and emission cost functions of various technologies were obtained (Abrell et al, 2019;Liu et al, 2014;Feng et al, 2018). Through the calibration unit, we obtained the electricity demand function (Liu et al, 2019;Lin and Purra, 2019;Pu et al, 2020).…”

The “My Electricity” Program as One of the Ways to Reduce CO2 Emissions in Poland

“…On the other hand, consumers bear to a large extent hidden costs related to the development of RES since these subsidies are refinanced from taxes. As a result, the allocation of aid funds in RES is extremely important, and it is worth examining whether the mechanisms governing it are not defective, and there are no problems with the appropriate allocation of funds [7,35]. Olczak et al [36] analysed the allocation of funds for photovoltaic micro-installations in Poland in terms of inequality between voivodeships in terms of their use.…”