Do costs fall faster than revenues? Dynamics of renewables entry into electricity markets

Richard Green and Thomas-Olivier Léautier

No 15-591, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: In many countries, entry of renewable electricity producers has been supported by subsidies and financed by a tax on electricity consumed. This article is the first to analytically derive the dynamics of the generation mix, subsidy, and tax as renewable capacity increases. This enables us to complement and extend previous work by providing analytical expressions for previously obtained simulation results, and deriving additional results. The analysis yields three main findings. First, the subsidy to renewable may never stop, as the value of the energy produced may decrease faster than the cost as renewable capacity increases. Second, high renewable penetration leads to a discontinuity in marginal values, after which the subsidy and tax grow extremely rapidly. Finally, reducing the occurrence of negative prices, for example by providing renewable producers with financial instead of physical dispatch insurance, yields significant benefits.

Keywords: Electric power markets; Renewables; Public policy (search for similar items in EconPapers)
JEL-codes: D61 L11 L94 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (31)

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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:29543

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