Authors: Andor, Mark
Voss, Achim
Title: Optimal renewable-energy subsidies
Language (ISO): en
Abstract: We derive optimal subsidization of renewable energies in electricity markets. The analysis takes into account that capacity investment must be chosen under uncertainty about demand conditions and capacity availability, and that capacity as well as electricity generation may be sources of externalities. The main result is that generation subsidies should correspond to externalities of electricity generation (e.g., greenhouse gas reductions), and investment subsidies should correspond to externalities of capacity (e.g., learning spillovers). If only capacity externalities exist, then electricity generation should not be subsidized at all. Our results suggest that some of the most popular promotion instruments cause welfare losses.
Subject Headings: peak-load pricing
feed-in tariffs
optimal subsidies
renewable energy sources
demand uncertainty
capacity investment
Issue Date: 2014-03-07
Appears in Collections:Sonderforschungsbereich (SFB) 823

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