IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v37y2009i3p1104-1115.html
   My bibliography  Save this article

Support schemes and vertical integration--Who skims the cream?

Author

Listed:
  • Ropenus, Stephanie
  • Jensen, Stine Grenaa

Abstract

This paper examines how the effectiveness of feed-in tariffs for distributed generators, producing renewable electricity, depends on industry structure, i.e., vertical integration vs. unbundling. A stylized analytical model with a monopolist and a competitive fringe (distributed generators) will be developed to analyze the impact of feed-in tariffs on renewable power production. The vertically integrated monopolist maximizes profits by setting the electricity price for residual demand and a network access charge incurred by the fringe. The fringe receives a fixed feed-in tariff per unit of electricity produced. Under vertical integration, a rise in the feed-in tariff induces the monopolist to raise access charges for fringe firms and skim part of their additional income. This partially offsets the supply increase of the fringe firms stimulated by the feed-in tariff. However, in the case of effective unbundling with an externally set access charge, there is no possibility for the monopolist to extract part of the fringe's profit. Then, the feed-in tariff fully accrues to the competitive fringe, and its supply will further increase. This setting will be extended to horizontal expansion when the monopolist also enters the renewable production segment. The effects on prices and output will be derived and compared.

Suggested Citation

  • Ropenus, Stephanie & Jensen, Stine Grenaa, 2009. "Support schemes and vertical integration--Who skims the cream?," Energy Policy, Elsevier, vol. 37(3), pages 1104-1115, March.
    • Handle: RePEc:eee:enepol:v:37:y:2009:i:3:p:1104-1115
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301-4215(08)00704-0
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Menanteau, Philippe & Finon, Dominique & Lamy, Marie-Laure, 2003. "Prices versus quantities: choosing policies for promoting the development of renewable energy," Energy Policy, Elsevier, vol. 31(8), pages 799-812, June.
    2. Lipp, Judith, 2007. "Lessons for effective renewable electricity policy from Denmark, Germany and the United Kingdom," Energy Policy, Elsevier, vol. 35(11), pages 5481-5495, November.
    3. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    4. Philippe Menanteau & Dominique Finon & Marie-Laure Lamy, 2003. "Prices versus quantities :environmental policies for promoting the development of renewable energy," Post-Print halshs-00480457, HAL.
    5. Munoz, Miquel & Oschmann, Volker & David Tabara, J., 2007. "Harmonization of renewable electricity feed-in laws in the European Union," Energy Policy, Elsevier, vol. 35(5), pages 3104-3114, May.
    6. Jensen, Stine Grenaa & Skytte, Klaus, 2003. "Simultaneous attainment of energy goals by means of green certificates and emission permits," Energy Policy, Elsevier, vol. 31(1), pages 63-71, January.
    7. Andris Piebalgs, 2006. "Green paper: A European strategy for sustainable, competitive and secure energy," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 7(02), pages 8-20, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bertolini, Marina & Buso, Marco & Greco, Luciano, 2020. "Competition in smart distribution grids," Energy Policy, Elsevier, vol. 145(C).
    2. Marina Bertolini & Marco Buso & Luciano Greco, 2018. "Competition and Regulation with Smart Grids," "Marco Fanno" Working Papers 0226, Dipartimento di Scienze Economiche "Marco Fanno".
    3. Nils‐Henrik M. von der Fehr & Stephanie Ropenus, 2017. "Renewable Energy Policy Instruments and Market Power," Scandinavian Journal of Economics, Wiley Blackwell, vol. 119(2), pages 312-345, April.
    4. Lüthi, Sonja & Wüstenhagen, Rolf, 2012. "The price of policy risk — Empirical insights from choice experiments with European photovoltaic project developers," Energy Economics, Elsevier, vol. 34(4), pages 1001-1011.
    5. Verbruggen, Aviel & Lauber, Volkmar, 2009. "Basic concepts for designing renewable electricity support aiming at a full-scale transition by 2050," Energy Policy, Elsevier, vol. 37(12), pages 5732-5743, December.
    6. Sugimoto, Kota, 2019. "Does transmission unbundling increase wind power generation in the United States?," Energy Policy, Elsevier, vol. 125(C), pages 307-316.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Walker, S.L., 2012. "Can the GB feed-in tariff deliver the expected 2% of electricity from renewable sources?," Renewable Energy, Elsevier, vol. 43(C), pages 383-388.
    2. Lehmann, Paul & Gawel, Erik, 2013. "Why should support schemes for renewable electricity complement the EU emissions trading scheme?," Energy Policy, Elsevier, vol. 52(C), pages 597-607.
    3. Sakah, Marriette & Diawuo, Felix Amankwah & Katzenbach, Rolf & Gyamfi, Samuel, 2017. "Towards a sustainable electrification in Ghana: A review of renewable energy deployment policies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 79(C), pages 544-557.
    4. Wang, Tan & Gong, Yu & Jiang, Chuanwen, 2014. "A review on promoting share of renewable energy by green-trading mechanisms in power system," Renewable and Sustainable Energy Reviews, Elsevier, vol. 40(C), pages 923-929.
    5. Paul Lehmann & Felix Creutzig & Melf-Hinrich Ehlers & Nele Friedrichsen & Clemens Heuson & Lion Hirth & Robert Pietzcker, 2012. "Carbon Lock-Out: Advancing Renewable Energy Policy in Europe," Energies, MDPI, vol. 5(2), pages 1-32, February.
    6. Butler, Lucy & Neuhoff, Karsten, 2008. "Comparison of feed-in tariff, quota and auction mechanisms to support wind power development," Renewable Energy, Elsevier, vol. 33(8), pages 1854-1867.
    7. Reinhard Madlener & Weiyu Gao & Ilja Neustadt & Peter Zweifel, 2008. "Promoting renewable electricity generation in imperfect markets: price vs. quantity policies," SOI - Working Papers 0809, Socioeconomic Institute - University of Zurich.
    8. Jenner, Steffen & Groba, Felix & Indvik, Joe, 2013. "Assessing the strength and effectiveness of renewable electricity feed-in tariffs in European Union countries," Energy Policy, Elsevier, vol. 52(C), pages 385-401.
    9. Youhyun Lee & Inseok Seo, 2019. "Sustainability of a Policy Instrument: Rethinking the Renewable Portfolio Standard in South Korea," Sustainability, MDPI, vol. 11(11), pages 1-19, May.
    10. Wüstenhagen, Rolf & Menichetti, Emanuela, 2012. "Strategic choices for renewable energy investment: Conceptual framework and opportunities for further research," Energy Policy, Elsevier, vol. 40(C), pages 1-10.
    11. Li, Jinke & Liu, Guy & Shao, Jing, 2020. "Understanding the ROC transfer payment in the renewable obligation with the recycling mechanism in the United Kingdom," Energy Economics, Elsevier, vol. 87(C).
    12. Nicolini, Marcella & Tavoni, Massimo, 2017. "Are renewable energy subsidies effective? Evidence from Europe," Renewable and Sustainable Energy Reviews, Elsevier, vol. 74(C), pages 412-423.
    13. Magnani, Natalia & Vaona, Andrea, 2013. "Regional spillover effects of renewable energy generation in Italy," Energy Policy, Elsevier, vol. 56(C), pages 663-671.
    14. Couture, Toby & Gagnon, Yves, 2010. "An analysis of feed-in tariff remuneration models: Implications for renewable energy investment," Energy Policy, Elsevier, vol. 38(2), pages 955-965, February.
    15. Avri Eitan, 2021. "Promoting Renewable Energy to Cope with Climate Change—Policy Discourse in Israel," Sustainability, MDPI, vol. 13(6), pages 1-17, March.
    16. Schaefer, Manuel S. & Lloyd, Bob & Stephenson, Janet R., 2012. "The suitability of a feed-in tariff for wind energy in New Zealand—A study based on stakeholders' perspectives," Energy Policy, Elsevier, vol. 43(C), pages 80-91.
    17. Orvika Rosnes, 2014. "Subsidies for renewable energy in inflexible power markets," Journal of Regulatory Economics, Springer, vol. 46(3), pages 318-343, December.
    18. Choi, Gobong & Huh, Sung-Yoon & Heo, Eunnyeong & Lee, Chul-Yong, 2018. "Prices versus quantities: Comparing economic efficiency of feed-in tariff and renewable portfolio standard in promoting renewable electricity generation," Energy Policy, Elsevier, vol. 113(C), pages 239-248.
    19. Lee, Chul-Yong & Huh, Sung-Yoon, 2017. "Forecasting the diffusion of renewable electricity considering the impact of policy and oil prices: The case of South Korea," Applied Energy, Elsevier, vol. 197(C), pages 29-39.
    20. Lüthi, Sonja & Wüstenhagen, Rolf, 2012. "The price of policy risk — Empirical insights from choice experiments with European photovoltaic project developers," Energy Economics, Elsevier, vol. 34(4), pages 1001-1011.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:37:y:2009:i:3:p:1104-1115. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.