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Optimal Policy Identification: Insights from the German Electricity Market

Listed author(s):
  • Johannes Karl Herrmann

    ()

    (Friedrich Schiller University of Jena, Faculty of Economics and Business Administration)

  • Ivan Savin

    (Friedrich Schiller University of Jena, Faculty of Economics and Business Administration, and Chair for Economic Policy, Karlsruhe Institute of Technology)

The diffusion of renewable electricity generating technologies is widely considered as crucial for establishing a sustainable energy system in the future. However, the required transition is unlikely to be achieved by market forces alone. For this reason, many countries implement various policy instruments to support this process, also by re-distributing related costs among all electricity consumers. This paper presents a novel history-friendly agent-based study aiming to explore the efficiency of different mixes of policy instruments by means of a Differential Evolution algorithm. Special emphasis of the model is devoted to the possibility of small scale renewable electricity generation, but also to the storage of this electricity using small scale facilities being actively developed over the last decade. Both combined pose an important instrument for electricity consumers to achieve partial or full autarky from the electricity grid, particularly after accounting for decreasing costs and increasing efficiency of both due to continuous innovation. Among other things, we find that the historical policy mix of Germany introduced too strong and inflexible demand-side instruments (like feed-in tariff) too early, thereby creating strong path-dependency for future policy makers and reducing their ability to react to technological but also economic shocks without further increases of the budget.

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Paper provided by Friedrich-Schiller-University Jena in its series Jena Economic Research Papers with number 2016-004.

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Date of creation: 08 Mar 2016
Handle: RePEc:jrp:jrpwrp:2016-004
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