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
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: Q41 Q48 H23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene and nep-reg
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Journal Article: Optimal renewable-energy promotion: Capacity subsidies vs. generation subsidies (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:473
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