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Grid investment and subsidy tradeoffs in renewable electricity auctions

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  • Davi-Arderius, Daniel
  • Trujillo-Baute, Elisa
  • del Río, Pablo

Abstract

Geographically neutral renewable energy auctions incentivize investors to locate their plants in optimal locations to minimize their bid prices, but this concentration might result in substantial grid investments. Ultimately, maximizing the social welfare for consumers requires minimizing the sum of renewable energy auction subsidies and grid investments. We quantify the trade-offs between grid investment costs and auction subsidies in geographically neutral and geographically diverse renewable energy auctions. We find that consumer costs are minimized in geographically diverse auctions, e.g., when renewables are not only located in the most optimal regions and, thus, when the auction subsidies are not minimized.

Suggested Citation

  • Davi-Arderius, Daniel & Trujillo-Baute, Elisa & del Río, Pablo, 2023. "Grid investment and subsidy tradeoffs in renewable electricity auctions," Utilities Policy, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:juipol:v:84:y:2023:i:c:s0957178723001327
    DOI: 10.1016/j.jup.2023.101620
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    References listed on IDEAS

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    1. Davi-Arderius, Daniel & Jamasb, Tooraj & Rosellon, Juan, 2024. "Network Operation and Constraints and the Path to Net Zero," Working Papers 8-2024, Copenhagen Business School, Department of Economics.
    2. Davi-Arderius, Daniel & Jamasb, Tooraj & Rosellon, Juan, 2024. "Renewable Integration and Power System Operation: The Role of Market Conditions," Working Papers 3-2024, Copenhagen Business School, Department of Economics.
    3. Davi-Arderius, Daniel & Schittekatte, Tim, 2023. "Carbon emissions impacts of operational network constraints: The case of Spain during the Covid-19 crisis," Energy Economics, Elsevier, vol. 128(C).
    4. Llorca, Manuel & Soroush, Golnoush & Giovannetti, Emanuele & Jamasb, Tooraj & Davi-Arderius, Daniel, 2024. "Energy Sector Digitalisation, Green Transition and Regulatory Trade-offs," Working Papers 5-2024, Copenhagen Business School, Department of Economics.

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