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Market performance and distributional effects on renewable energy markets

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  • Paul Koutstaal
  • X. van Tilburg
  • Michiel Bijlsma
  • Gijsbert Zwart

Abstract

A renewable obligation combined with tradable renewable energy certificates is a market-based instrument used to promote the production of electricity from renewable energy sources. A renewable obligation is an alternative for subsidies. A renewable obligation will only be an efficient instrument if certificate markets are efficient. This requires that there is no market power and no anti-competitive behaviour on the certificate market.If the current developments in Dutch renewable energy production continue, market power on a future renewable certificate market in the Netherlands will probably not be an issue, even if the RO should only rest on the retail market instead of on the whole electricity market.A renewable obligation will raise the retail price for consumers, thereby reducing consumer surplus. Simulations show that the retail electricity price increases with € 30 per MWh to a level of € 104 per MWh in case of a 30% renewable target. Consumer surplus is reduced with 19% compared to the baseline scenario.In contrast, a subsidy such as the Dutch SDE which is financed from the state budget has the effect to (slightly) lower the retail electricity price, thereby increasing consumer surplus. It should however be realised that the costs of the subsidy will indirectly affect electricity consumers through their tax payments.

Suggested Citation

  • 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.
    • Handle: RePEc:cpb:docmnt:190
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. 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.
    3. 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).

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    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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