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Impacts of the German Support for Renewable Energy on Electricity Prices, Emissions and Profits: An Analysis Based on a European Electricity Market Model

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  • Thure Traber
  • Claudia Kemfert

Abstract

Effects of renewable support legislation on electricity prices have been analyzed with a plethora of models. However, these models neglect at least one of the following aspects which we take into account in our analysis: oligopolistic market behavior of dominant firms, emission trading, restricted electricity trade and production capacities, and effects on producer prices and firm profits. In this paper we use the electricity market model EMELIE and decompose the impact of the feed-in of renewable energy in Germany into two effects: a substitution effect triggered by the displacement of conventional sources and a permit price effect induced via the ETS. We find that the renewable support increases consumer prices slightly by 0.1 Eurocent/kWh, while the producer price decreases by 0.4 Eurocent/kWh. In addition, emissions from electricity generation in Germany are reduced by 32 Mt CO2, but are hardly altered if we consider the European electricity sector in total. Finally, the profits of most firms are significantly reduced by the support policy unless the firms combine relatively carbon intensive production equipment with a loose connection to the German grid.

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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 712.

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Length: II; 17 p.
Date of creation: 2007
Date of revision:
Handle: RePEc:diw:diwwpp:dp712

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References

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  1. Andrea Bigano & Stef Proost, 2004. "The Opening of the European Electricity Market and Environmental Policy: Does the Degree of Competition Matter?," Working Papers, Fondazione Eni Enrico Mattei 2004.40, Fondazione Eni Enrico Mattei.
  2. Lise, Wietze & Linderhof, Vincent & Kuik, Onno & Kemfert, Claudia & Ostling, Robert & Heinzow, Thomas, 2006. "A game theoretic model of the Northwestern European electricity market--market power and the environment," Energy Policy, Elsevier, Elsevier, vol. 34(15), pages 2123-2136, October.
  3. Amundsen, Eirik S. & Mortensen, Jorgen Birk, 2001. "The Danish Green Certificate System: some simple analytical results," Energy Economics, Elsevier, Elsevier, vol. 23(5), pages 489-509, September.
  4. Morthorst, P. E., 2003. "National environmental targets and international emission reduction instruments," Energy Policy, Elsevier, Elsevier, vol. 31(1), pages 73-83, January.
  5. Rathmann, M., 2007. "Do support systems for RES-E reduce EU-ETS-driven electricity prices?," Energy Policy, Elsevier, Elsevier, vol. 35(1), pages 342-349, January.
  6. Burniaux, Jean-Marc & Truong Truong, 2002. "GTAP-E: An Energy-Environmental Version of the GTAP Model," GTAP Technical Papers 923, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  7. Jensen, S. G. & Skytte, K., 2002. "Interactions between the power and green certificate markets," Energy Policy, Elsevier, Elsevier, vol. 30(5), pages 425-435, April.
  8. Jensen, Stine Grenaa & Skytte, Klaus, 2003. "Simultaneous attainment of energy goals by means of green certificates and emission permits," Energy Policy, Elsevier, Elsevier, vol. 31(1), pages 63-71, January.
  9. Amundsen, E.S. & Mortensen, J.B., 2001. "The Danish Green Certificate System: Some Simple Analytical Results," Norway; Department of Economics, University of Bergen, Department of Economics, University of Bergen 226, Department of Economics, University of Bergen.
  10. Morthorst, P. E., 2001. "Interactions of a tradable green certificate market with a tradable permits market," Energy Policy, Elsevier, Elsevier, vol. 29(5), pages 345-353, April.
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  12. Claudia Kemfert, 2007. "The European electricity and climate policy—complement or substitute?," Environment and Planning C: Government and Policy, Pion Ltd, London, Pion Ltd, London, vol. 25(1), pages 115-130, February.
  13. Truong P. Truong & Claudia Kemfert & Jean-Marc Burniaux, 2007. "GTAP-E: An Energy-Environmental Version of the GTAP Model with Emission Trading," Discussion Papers of DIW Berlin 668, DIW Berlin, German Institute for Economic Research.
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Cited by:
  1. Wadim Strielkowski & Štepán Krška & Evgeny Lisin, 2013. "Energy Economics and Policy of Renewable Energy Sources in the European Union," International Journal of Energy Economics and Policy, Econjournals, Econjournals, vol. 3(4), pages 333 - 340.
  2. Weigt, Hannes & Hirschhausen, Christian von, 2008. "Price formation and market power in the German wholesale electricity market in 2006," Energy Policy, Elsevier, Elsevier, vol. 36(11), pages 4227-4234, November.

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