Renewable energy price-control policy in the presence of innovation: is government pre-commitment preferable?

Reinhard Madlener and Ilja Neustadt

MPRA Paper from University Library of Munich, Germany

Abstract: In a perfectly competitive market with a possibility of technological innovation we analyze guaranteed feed-in tariffs for electricity from renewables from a dynamic efficiency and social welfare point of view. Specifically, we model decisions about the technological innovation with convex costs within the framework of a game-theoretic model, and discuss implications for optimal policy design under different assumptions regarding regulatory pre-commitment. We find that in terms of dynamic efficiency no pre-commitment policies are shown to be at least as good as the pre-commitment ones. Thus, a government with a preference for innovation being performed if the achievable cost reduction is high should be in favor of the no pre-commitment regime.

Keywords: Renewable electricity; Feed-in tariffs; Regulatory pre-commitment; Innovation; Energy policy (search for similar items in EconPapers)
JEL-codes: Q42 Q48 (search for similar items in EconPapers)
Date: 2018-10-01, Revised 2019-01-19
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
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