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Grid Investment and Support Schemes for Renewable Electricity Generation

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  • Wagner, Johannes

    (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))

Abstract

The unbundling of formerly vertically integrated utilities in liberalized electricity markets led to a coordination problem between investments in the regulated electricity grid and investments into new power generation. At the same time investments into new generation capacities based on weather dependent renewable energy sources such as wind and solar energy are increasingly subsidized with different support schemes. Against this backdrop this article analyzes the locational choice of private wind power investors under different support schemes and the implications on grid investments. I find that investors do not choose system optimal locations in feed-in tariff schemes, feed-in premium schemes and subsidy systems with direct capacity payments. Consequently, inefficiencies arise if transmission investment follows wind power investment. A benevolent transmission operator can implement the first-best solution by anticipatory investment behavior, which is however only applicable under perfect regulation. Alternatively a location dependent network charge for wind power producers can directly influence investment decisions and internalize the grid integration costs of wind power generation.

Suggested Citation

  • Wagner, Johannes, 2016. "Grid Investment and Support Schemes for Renewable Electricity Generation," EWI Working Papers 2016-8, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI), revised 10 Aug 2017.
    • Handle: RePEc:ris:ewikln:2016_008
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    Cited by:

    1. Paul Simshauser & Farhad Billimoria & Craig Rogers, 2021. "Optimising VRE plant capacity in Renewable Energy Zones," Working Papers EPRG2121, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    2. Kristine Grimsrud & Cathrine Hagem & Arne Lind & Henrik Lindhjem, 2020. "Efficient spatial allocation of wind power plants given environmental externalities due to turbines and grids," Discussion Papers 938, Statistics Norway, Research Department.
    3. Simshauser, P., 2021. "Renewable Energy Zones in Australia’s National Electricity Market," Cambridge Working Papers in Economics 2119, Faculty of Economics, University of Cambridge.
    4. Schmidt, Lukas & Zinke, Jonas, 2020. "One price fits all? Wind power expansion under uniform and nodal pricing in Germany," EWI Working Papers 2020-6, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    5. Kaloud, Tobias, 2017. "Renewable Energy Sources and Investment in European Power Transmission Networks," Department of Economics Working Paper Series 249, WU Vienna University of Economics and Business.
    6. Obermüller, Frank, 2017. "Build Wind Capacities at Windy Locations? Assessment of System Optimal Wind Locations," EWI Working Papers 2017-9, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    7. Kaloud Tobias, 2017. "Renewable Energy Sources and Investment in European Power Transmission Networks," Department of Economics Working Papers wuwp249, Vienna University of Economics and Business, Department of Economics.

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    More about this item

    Keywords

    Renewable Energy Investment; Transmission Investment; Coordination Problem; External Effects;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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