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Quantities vs. capacities: Minimizing the social cost of renewable energy promotion

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  • Andor, Mark
  • Flinkerbusch, Kai
  • Voß, Achim

Abstract

In this article we show how different promotion schemes for renewables affect economic welfare. Our starting point is that external benefits of renewable electricity supply besides the abatement of greenhouse gases are not related to actual electricity generation but to producing and installing capacity. We argue that generation based subsidies such as feed-in tariffs and bonus payments can only be a second-best solution. Our model framework allows us to explain how these second-best instruments cause welfare losses in an environment of volatile demand. We postulate that capacity payments for renewables should be implemented in order to avoid unnecessary social costs. --

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Bibliographic Info

Paper provided by Center of Applied Economic Research Münster (CAWM), University of Münster in its series CAWM Discussion Papers with number 59.

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Date of creation: 2012
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Handle: RePEc:zbw:cawmdp:59

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Keywords: Renewable Energy Sources; Energy Policy; Promotion Instruments;

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  1. Gerlagh, R. & Kverndokk, S. & Rosendahl, K.E., 2009. "Optimal timing of climate change policy: Interaction between carbon taxes and innovation externalities," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3777015, Tilburg University.
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  8. Guyomard, Herve & Bureau, Jean-Christophe & Gohin, Alexandre & Le Mouel, Chantal, 2000. "Impact of the 1996 US FAIR Act on the Common Agricultural Policy in the World Trade Organisation context: the decoupling issue," Food Policy, Elsevier, vol. 25(1), pages 17-34, February.
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  10. Brandstätt, Christine & Brunekreeft, Gert & Jahnke, Katy, 2011. "How to deal with negative power price spikes?--Flexible voluntary curtailment agreements for large-scale integration of wind," Energy Policy, Elsevier, vol. 39(6), pages 3732-3740, June.
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Cited by:
  1. Nagl, Stephan, 2013. "Prices vs. Quantities: Incentives for Renewable Power Generation - Numerical Analysis for the European Power Market," EWI Working Papers 2013-4, Energiewirtschaftliches Institut an der Universitaet zu Koeln.

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