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Subsidies for Renewable Energies in the Presence of Learning Effects and Market Power

  • Johanna Reichenbach
  • Till Requate

We study the impact of learning by doing, learning spill-overs, and imperfect competition in a model with two types of electricity producers, an oligopolistic sector of polluting fossil-fuel utilities and a competitive fringe of non-polluting generators of electricity from renewable energy sources (RES-E). Furthermore we consider an upstream industry of RES-E equipment producers engaged in learning by doing. We show that a first-best policy requires two instruments, a tax in the fossil-fuel sector and an output subsidy for RES-E equipment producers. We then study second-best-optimal feed-in tariffs that are paid to the generators of RES-E. By means of simulations we calculate the welfare loss of a second-best-optimal feed-in-tariff policy and analyze how market structure impacts on second-best-optimal feed-in tariffs

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File URL: https://www.ifw-members.ifw-kiel.de/publications/subsidies-for-renewable-energies-in-the-presence-of-learning-effects-and-market-power-1/kwp-1689.pdf
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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1689.

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Length: 48 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:kie:kieliw:1689
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