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Economics of renewable energy expansion and security of supply: A dynamic simulation of the German electricity market

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  • Coester, Andreas
  • Hofkes, Marjan W.
  • Papyrakis, Elissaios

Abstract

We explore the impact of renewable energy under free market conditions on the security of energy supply using data for the German electricity market. We design a fundamental electricity market model, where renewable energy capacity is not driven by expansion goals, but is dynamically modeled as an economically-driven investment option. Furthermore, we analyze the economics of five policy scenarios designed to secure both electricity supply and renewable energy expansion. Our analysis demonstrates that renewable energy expansion leads to conventional power plant shut-downs (due to economic losses) and, as a result, to energy shortages. We find that the application of a fixed feed-in tariff mechanism for renewable energy (i.e. a fixed payment for the provided energy) is an appropriate instrument to simultaneously achieve renewable energy expansion and uninterrupted energy supply. However, when internalizing the external costs of electricity generation, the scenario of a free market for renewable energy together with subsidies for conventional power plants becomes the most cost efficient option.

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  • Coester, Andreas & Hofkes, Marjan W. & Papyrakis, Elissaios, 2018. "Economics of renewable energy expansion and security of supply: A dynamic simulation of the German electricity market," Applied Energy, Elsevier, vol. 231(C), pages 1268-1284.
    • Handle: RePEc:eee:appene:v:231:y:2018:i:c:p:1268-1284
    DOI: 10.1016/j.apenergy.2018.09.143
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    8. Martelli, Emanuele & Freschini, Marco & Zatti, Matteo, 2020. "Optimization of renewable energy subsidy and carbon tax for multi energy systems using bilevel programming," Applied Energy, Elsevier, vol. 267(C).
    9. Qais, Mohammed H. & Hasanien, Hany M. & Alghuwainem, Saad, 2019. "Identification of electrical parameters for three-diode photovoltaic model using analytical and sunflower optimization algorithm," Applied Energy, Elsevier, vol. 250(C), pages 109-117.
    10. Fang, Xichen & Guo, Hongye & Zhang, Da & Chen, Qixin, 2021. "Cost recovery and investment barriers for renewables under market manipulation of thermal collusion," Applied Energy, Elsevier, vol. 285(C).
    11. Yunjun Yu & Yanghui Guo & Weidong Min & Fanpeng Zeng, 2019. "Trusted Transactions in Micro-Grid Based on Blockchain," Energies, MDPI, vol. 12(10), pages 1-16, May.
    12. Zhenyu Zhao & Huijia Yang, 2020. "Regional Security Assessment of Integrated Energy Systems with Renewables in China: A Grid-Connected Perspective," Sustainability, MDPI, vol. 12(24), pages 1-18, December.
    13. Andreas Coester & Marjan Hofkes & Elissaios Papyrakis, "undated". "Cross-border Electricity Transfers in the case of differentiated Renewable Energy Sources: A Simulation Analysis for Germany and Spain," Tinbergen Institute Discussion Papers 22-043/VIII, Tinbergen Institute.
    14. Heffron, Raphael J. & Körner, Marc-Fabian & Schöpf, Michael & Wagner, Jonathan & Weibelzahl, Martin, 2021. "The role of flexibility in the light of the COVID-19 pandemic and beyond: Contributing to a sustainable and resilient energy future in Europe," Renewable and Sustainable Energy Reviews, Elsevier, vol. 140(C).
    15. Li, Yanxue & Zhang, Xiaoyi & Gao, Weijun & Ruan, Yingjun, 2020. "Capacity credit and market value analysis of photovoltaic integration considering grid flexibility requirements," Renewable Energy, Elsevier, vol. 159(C), pages 908-919.
    16. Levin, Todd & Kwon, Jonghwan & Botterud, Audun, 2019. "The long-term impacts of carbon and variable renewable energy policies on electricity markets," Energy Policy, Elsevier, vol. 131(C), pages 53-71.
    17. Rupp, Matthias & Handschuh, Nils & Rieke, Christian & Kuperjans, Isabel, 2019. "Contribution of country-specific electricity mix and charging time to environmental impact of battery electric vehicles: A case study of electric buses in Germany," Applied Energy, Elsevier, vol. 237(C), pages 618-634.
    18. Thomaßen, Georg & Redl, Christian & Bruckner, Thomas, 2022. "Will the energy-only market collapse? On market dynamics in low-carbon electricity systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 164(C).
    19. Nolting, Lars & Praktiknjo, Aaron, 2020. "Can we phase-out all of them? Probabilistic assessments of security of electricity supply for the German case," Applied Energy, Elsevier, vol. 263(C).
    20. Bigerna, Simona & Ceccacci, Francesca & Micheli, Silvia & Polinori, Paolo, 2023. "Between saying and doing for ensuring energy resources supply: The case of Italy in time of crisis," Resources Policy, Elsevier, vol. 85(PA).

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