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Quantities vs. capacities: Minimizing the social cost of renewable energy promotion

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  • Andor, Mark
  • Flinkerbusch, Kai
  • Voß, Achim

Abstract

In this article we show how different promotion schemes for renewables affect economic welfare. Our starting point is that external benefits of renewable electricity supply besides the abatement of greenhouse gases are not related to actual electricity generation but to producing and installing capacity. We argue that generation based subsidies such as feed-in tariffs and bonus payments can only be a second-best solution. Our model framework allows us to explain how these second-best instruments cause welfare losses in an environment of volatile demand. We postulate that capacity payments for renewables should be implemented in order to avoid unnecessary social costs.

Suggested Citation

  • Andor, Mark & Flinkerbusch, Kai & Voß, Achim, 2012. "Quantities vs. capacities: Minimizing the social cost of renewable energy promotion," CAWM Discussion Papers 59, University of Münster, Münster Center for Economic Policy (MEP).
    • Handle: RePEc:zbw:cawmdp:59
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    Cited by:

    1. Erik Gawel & Alexandra Purkus & Klaas Korte & Paul Lehmann, 2013. "Förderung der Markt- und Systemintegration erneuerbarer Energien: Perspektiven einer instrumentellen Weiterentwicklung," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 82(3), pages 123-136.
    2. Nagl, Stephan, 2013. "Prices vs. Quantities: Incentives for Renewable Power Generation - Numerical Analysis for the European Power Market," EWI Working Papers 2013-4, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    3. Shariat Torbaghan, Shahab & Müller, Hannah K. & Gibescu, Madeleine & van der Meijden, Mart & Roggenkamp, Martha, 2015. "The legal and economic impacts of implementing a joint feed-in premium support scheme on the development of an offshore grid," Renewable and Sustainable Energy Reviews, Elsevier, vol. 45(C), pages 263-277.
    4. Hu, Jing & Harmsen, Robert & Crijns-Graus, Wina & Worrell, Ernst & van den Broek, Machteld, 2018. "Identifying barriers to large-scale integration of variable renewable electricity into the electricity market: A literature review of market design," Renewable and Sustainable Energy Reviews, Elsevier, vol. 81(P2), pages 2181-2195.

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    More about this item

    Keywords

    Renewable Energy Sources; Energy Policy; Promotion Instruments;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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