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Optimal Renewable-Energy Subsidies

Mark Andor and Achim Voß

No 473, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

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 are likely to cause welfare losses.

Keywords: peak-load pricing; capacity investment; demand and supply uncertainty; renewable energy sources; energy policy; optimal subsidies; feed-in tariffs (search for similar items in EconPapers)
JEL-codes: H23 Q41 Q48 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-ene and nep-reg
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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Journal Article: Optimal renewable-energy promotion: Capacity subsidies vs. generation subsidies (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:473

DOI: 10.4419/86788533

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