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Renewable Energy Support, Negative Prices, and Real-time Pricing

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  • Pahle, Michael
  • Schill, Wolf-Peter
  • Gambardella, Christian
  • Tietjen, Oliver

Abstract

We analyze the welfare effects of two different renewable support schemes designed to achieve a given target for the share of fluctuating renewable electricity generation: a feed-in premium (FiP), which can induce negative wholesale prices, and a capacity premium (CP), which does not. For doing so we use a stylized economic model that differentiates between real-time and flat-rate pricing and is loosely calibrated on German market data. Counter-intuitively, we find that distortions through induced negative prices do not reduce the net consumer surplus of the FiP relative to the CP. Rather, the FiP performs better under all assumptions considered. The reason is that increased use of renewables under the FiP, particularly in periods of negative prices, leads to a reduction of required renewable capacity and respective costs. This effect dominates larger deadweight losses of consumer surplus generated by the FiP compared to the CP. Furthermore, surplus gains experienced by consumers who switch from flat-rate to real-time pricing are markedly higher under the FiP, which might be interpreted as greater incentives to enable such switching. While our findings are primarily of theoretical nature and the full range of implications of negative prices needs to be carefully considered, we hope that our analysis makes policy-makers more considerate of their potential benefits.

Suggested Citation

  • Pahle, Michael & Schill, Wolf-Peter & Gambardella, Christian & Tietjen, Oliver, 2016. "Renewable Energy Support, Negative Prices, and Real-time Pricing," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 37, pages 147-169.
  • Handle: RePEc:zbw:espost:200514
    DOI: 10.5547/01956574.37.SI3.mpah
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    Cited by:

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    2. Christian Gambardella & Michael Pahle & Wolf-Peter Schill, 2016. "Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Pricing under Carbon-Tax-Induced Variable Renewable Energy Supply," Discussion Papers of DIW Berlin 1621, DIW Berlin, German Institute for Economic Research.
    3. Simona-Vasilica Oprea & Adela Bâra, 2017. "Analyses of Wind and Photovoltaic Energy Integration from the Promoting Scheme Point of View: Study Case of Romania," Energies, MDPI, vol. 10(12), pages 1-16, December.
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    5. Meus, Jelle & Van den Bergh, Kenneth & Delarue, Erik & Proost, Stef, 2019. "On international renewable cooperation mechanisms: The impact of national RES-E support schemes," Energy Economics, Elsevier, vol. 81(C), pages 859-873.
    6. Gambardella, Christian & Pahle, Michael & Schill, Wolf-Peter, 2020. "Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Retail Pricing Under Carbon Taxation and Variable Renewable Electricity Supply," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 75(1), pages 183-213.
    7. Antweiler, Werner & Muesgens, Felix, 2021. "On the long-term merit order effect of renewable energies," Energy Economics, Elsevier, vol. 99(C).
    8. Rövekamp, Patrick & Schöpf, Michael & Wagon, Felix & Weibelzahl, Martin & Fridgen, Gilbert, 2021. "Renewable electricity business models in a post feed-in tariff era," Energy, Elsevier, vol. 216(C).
    9. Winkler, Jenny & Pudlik, Martin & Ragwitz, Mario & Pfluger, Benjamin, 2016. "The market value of renewable electricity – Which factors really matter?," Applied Energy, Elsevier, vol. 184(C), pages 464-481.
    10. Ruhnau, Oliver, 2020. "Market-based renewables: How flexible hydrogen electrolyzers stabilize wind and solar market values," EconStor Preprints 227075, ZBW - Leibniz Information Centre for Economics.

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    More about this item

    Keywords

    RES support schemes; Induces negative prices; Real-time pricing;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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