IDEAS home Printed from https://ideas.repec.org/p/cam/camdae/1927.html

Capacity vs Energy Subsidies for Renewables: Benefits and Costs for the 2030 EU Power Market

Author

Listed:
  • Özdemir, Ö.
  • Hobbs, B.
  • van Hout, M.
  • Koutstaal, P.

Abstract

Policy makers across Europe have implemented renewable support policies with several policy objectives in mind. Among these are achieving ambitious renewable energy targets at the lowest cost and promoting technology improvement through learning-by-doing. Although subsidy mechanisms based on energy out-put are cost-effective for achieving a certain renewable energy target in the short run, policies tied to capacity installation might be more effective in reducing technology costs in the longer term. We address the question of how policies that subsidize renewable energy (feed-in premia and renewable portfolio standards (RPSs)) versus capacity (investment subsidies) impact the mix of renewable investments, electricity costs, renewable share, the amount of subsidies, and consumer prices in the EU electric power market in 2030. Our analysis is unique in its focus on the market impacts of capacity-oriented vs energy-oriented policies while considering a realistic landscape of diverse and time-varying loads and renewable resources (including existing and potential hydro, wind, and solar resources), as well as fossil-fuelled generators and network constraints.

Suggested Citation

  • Özdemir, Ö. & Hobbs, B. & van Hout, M. & Koutstaal, P., 2019. "Capacity vs Energy Subsidies for Renewables: Benefits and Costs for the 2030 EU Power Market," Cambridge Working Papers in Economics 1927, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1927
    as

    Download full text from publisher

    File URL: https://www.econ.cam.ac.uk/sites/default/files/publication-cwpe-pdfs/cwpe1927.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Brouwer, Anne Sjoerd & van den Broek, Machteld & Özdemir, Özge & Koutstaal, Paul & Faaij, André, 2016. "Business case uncertainty of power plants in future energy systems with wind power," Energy Policy, Elsevier, vol. 89(C), pages 237-256.
    2. repec:aen:journl:ej37-si2-neuho is not listed on IDEAS
    3. Capros, Pantelis & Mantzos, Leonidas & Parousos, Leonidas & Tasios, Nikolaos & Klaassen, Ger & Van Ierland, Tom, 2011. "Analysis of the EU policy package on climate change and renewables," Energy Policy, Elsevier, vol. 39(3), pages 1476-1485, March.
    4. Karsten Neuhoff & Sophia Wolter & Sebastian Schwenen, 2016. "Power Markets with Renewables: New Perspectives for the European Target Model," The Energy Journal, , vol. 37(2_suppl), pages 23-38, June.
    5. repec:aen:journl:2008v29-03-a07 is not listed on IDEAS
    6. repec:aen:journl:ej37-4-sauma is not listed on IDEAS
    7. Newbery, David, 2018. "Evaluating the case for supporting renewable electricity," Energy Policy, Elsevier, vol. 120(C), pages 684-696.
    8. Richstein, Jörn C. & Chappin, Émile J.L. & de Vries, Laurens J., 2015. "Adjusting the CO2 cap to subsidised RES generation: Can CO2 prices be decoupled from renewable policy?," Applied Energy, Elsevier, vol. 156(C), pages 693-702.
    9. repec:aen:journl:ej37-si2-green is not listed on IDEAS
    10. Tanaka, Makoto & Chen, Yihsu, 2013. "Market power in renewable portfolio standards," Energy Economics, Elsevier, vol. 39(C), pages 187-196.
    11. Daniëls, B.W. & Uyterlinde, M.A., 2005. "ADMIRE-REBUS: modeling the European market for renewable electricity," Energy, Elsevier, vol. 30(14), pages 2596-2616.
    12. Nahmmacher, Paul & Schmid, Eva & Hirth, Lion & Knopf, Brigitte, 2016. "Carpe diem: A novel approach to select representative days for long-term power system modeling," Energy, Elsevier, vol. 112(C), pages 430-442.
    13. Paul Koutstaal & X. van Tilburg & Michiel Bijlsma & Gijsbert Zwart, 2009. "Market performance and distributional effects on renewable energy markets," CPB Document 190, CPB Netherlands Bureau for Economic Policy Analysis.
    14. repec:aen:eeepjl:1_1_07 is not listed on IDEAS
    15. repec:aen:journl:2010v31-01-a05 is not listed on IDEAS
    16. Andor, Mark & Voss, Achim, 2016. "Optimal renewable-energy promotion: Capacity subsidies vs. generation subsidies," Resource and Energy Economics, Elsevier, vol. 45(C), pages 144-158.
    17. del Río, Pablo & Resch, Gustav & Ortner, Andre & Liebmann, Lukas & Busch, Sebastian & Panzer, Christian, 2017. "A techno-economic analysis of EU renewable electricity policy pathways in 2030," Energy Policy, Elsevier, vol. 104(C), pages 484-493.
    18. Paul Koutstaal & Michiel Bijlsma & Gijsbert Zwart & X. van Tilburg, 2009. "Market performance and distributional effects on renewable energy markets," CPB Document 190.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    19. Rubin, Edward S. & Azevedo, Inês M.L. & Jaramillo, Paulina & Yeh, Sonia, 2015. "A review of learning rates for electricity supply technologies," Energy Policy, Elsevier, vol. 86(C), pages 198-218.
    20. Fischer, Carolyn & Newell, Richard G., 2008. "Environmental and technology policies for climate mitigation," Journal of Environmental Economics and Management, Elsevier, vol. 55(2), pages 142-162, March.
    21. Andresen, Gorm B. & Søndergaard, Anders A. & Greiner, Martin, 2015. "Validation of Danish wind time series from a new global renewable energy atlas for energy system analysis," Energy, Elsevier, vol. 93(P1), pages 1074-1088.
    22. Huntington, Samuel C. & Rodilla, Pablo & Herrero, Ignacio & Batlle, Carlos, 2017. "Revisiting support policies for RES-E adulthood: Towards market compatible schemes," Energy Policy, Elsevier, vol. 104(C), pages 474-483.
    23. Karsten Neuhoff & Nils May & Jörn Richstein, 2017. "Incentives for the Long-Term Integration of Renewable Energies: A Plea for a Market Value Model," DIW Economic Bulletin, DIW Berlin, German Institute for Economic Research, vol. 7(46/47), pages 467-476.
    24. Michaela Unteutsch, 2014. "Redistribution Effects Resulting from Cross-Border Cooperation in Support for Renewable Energy," EWI Working Papers 2014-1, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Özdemir, Özge & Hobbs, Benjamin F. & van Hout, Marit & Koutstaal, Paul R., 2020. "Capacity vs energy subsidies for promoting renewable investment: Benefits and costs for the EU power market," Energy Policy, Elsevier, vol. 137(C).
    2. Aleksandra Matuszewska-Janica & Dorota Żebrowska-Suchodolska & Agnieszka Mazur-Dudzińska, 2021. "The Situation of Households on the Energy Market in the European Union: Consumption, Prices, and Renewable Energy," Energies, MDPI, vol. 14(19), pages 1-21, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Özdemir, Özge & Hobbs, Benjamin F. & van Hout, Marit & Koutstaal, Paul R., 2020. "Capacity vs energy subsidies for promoting renewable investment: Benefits and costs for the EU power market," Energy Policy, Elsevier, vol. 137(C).
    2. 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.
    3. Meus, Jelle & De Vits, Sarah & S'heeren, Nele & Delarue, Erik & Proost, Stef, 2021. "Renewable electricity support in perfect markets: Economic incentives under diverse subsidy instruments," Energy Economics, Elsevier, vol. 94(C).
    4. Geßner, Daniel, 2024. "Rethinking renewable energy policies for hydrogen: How the intercept of electricity and hydrogen markets can be addressed," W.E.P. - Würzburg Economic Papers 111, University of Würzburg, Department of Economics.
    5. Chen, Ting & Vandendriessche, Frederik, 2023. "Evolution of the EU legal framework for promoting RES-E: A market compatible paradigm shift?," Utilities Policy, Elsevier, vol. 83(C).
    6. Keppler, Jan Horst & Quemin, Simon & Saguan, Marcelo, 2022. "Why the sustainable provision of low-carbon electricity needs hybrid markets," Energy Policy, Elsevier, vol. 171(C).
    7. Grafström, Jonas & Poudineh, Rahmat, 2023. "No evidence of counteracting policy effects on European solar power invention and diffusion," Energy Policy, Elsevier, vol. 172(C).
    8. Venmans, Frank, 2012. "A literature-based multi-criteria evaluation of the EU ETS," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(8), pages 5493-5510.
    9. Abrell, Jan & Kosch, Mirjam & Rausch, Sebastian, 2019. "Carbon abatement with renewables: Evaluating wind and solar subsidies in Germany and Spain," Journal of Public Economics, Elsevier, vol. 169(C), pages 172-202.
    10. Newbery, David, 2018. "Evaluating the case for supporting renewable electricity," Energy Policy, Elsevier, vol. 120(C), pages 684-696.
    11. Nemet, Gregory F. & Lu, Jiaqi & Rai, Varun & Rao, Rohan, 2020. "Knowledge spillovers between PV installers can reduce the cost of installing solar PV," Energy Policy, Elsevier, vol. 144(C).
    12. Baldwin, Elizabeth & Cai, Yongyang & Kuralbayeva, Karlygash, 2020. "To build or not to build? Capital stocks and climate policy∗," Journal of Environmental Economics and Management, Elsevier, vol. 100(C).
    13. Verde, Stefano F. & Pazienza, Maria Grazia, 2016. "Energy and climate hand-in-hand: Financing RES-E support with carbon revenues," Energy Policy, Elsevier, vol. 88(C), pages 234-244.
    14. Sijm, Jos & Lehmann, Paul & Chewpreecha, Unnada & Gawel, Erik & Mercure, Jean-Francois & Pollitt, Hector & Strunz, Sebastian, 2014. "EU climate and energy policy beyond 2020: Are additional targets and instruments for renewables economically reasonable?," UFZ Discussion Papers 3/2014, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    15. Bigerna, Simona & Bollino, Carlo Andrea & Micheli, Silvia, 2016. "Renewable energy scenarios for costs reductions in the European Union," Renewable Energy, Elsevier, vol. 96(PA), pages 80-90.
    16. Haugen, Mari & Blaisdell-Pijuan, Paris L. & Botterud, Audun & Levin, Todd & Zhou, Zhi & Belsnes, Michael & Korpås, Magnus & Somani, Abhishek, 2024. "Power market models for the clean energy transition: State of the art and future research needs," Applied Energy, Elsevier, vol. 357(C).
    17. Johanndeiter, Silke & Helistö, Niina & Bertsch, Valentin, 2025. "Does the difference make a difference? Evaluating Contracts for Difference design in a fully decarbonised European electricity market," Resource and Energy Economics, Elsevier, vol. 83(C).
    18. Weigt, Hannes & Ellerman, Denny & Delarue, Erik, 2013. "CO2 abatement from renewables in the German electricity sector: Does a CO2 price help?," Energy Economics, Elsevier, vol. 40(S1), pages 149-158.
    19. Silke Johanndeiter & Jonas Finke & Justus Heuer, 2025. "Most certainly certain? The Impact of Contract for Difference Design on Renewables' Strike Prices and Electricity Market Risks," Papers 2512.17508, arXiv.org.
    20. Florian Habermacher & Paul Lehmann, 2017. "Commitment vs. Discretion in Climate and Energy Policy," CESifo Working Paper Series 6355, CESifo.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cam:camdae:1927. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jake Dyer (email available below). General contact details of provider: https://www.econ.cam.ac.uk/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.