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On the impact of renewable energy support schemes on power prices


  • Bode, Sven


Power production from renewable energies is supported through special support schemes in almost all industrialised countries. This is because they are generally not competitive today although their use offers a number of benefits that are not considered by energy markets. These support schemes need to be financed, though. Two main options can be observed: Either support through the general public budget or through a renewable energy mark-up that is charged to final power consumers. As this mark-up increases power costs for consumers, the support schemes have been criticised, especially by power intensive industries. It argues that it looses competitiveness on the world marked with higher electricity costs due to the mark-up. However, this argument is short-sighted as it only reflects one side of the medal, namely the mark-up. The increased used of renewable energies may also have an influence on the power price on the whole sale market. Based on the analysis of a specific case in Germany the present paper analyses this impact on the whole market more generally. Assuming a simple power market, I show that the power costs for consumers may decrease due to the support scheme. If and to what extend power costs decrease depends on the specific characteristics of the market and the value attached to the greenness of power from renewable energies.

Suggested Citation

  • Bode, Sven, 2006. "On the impact of renewable energy support schemes on power prices," HWWI Research Papers 4-7, Hamburg Institute of International Economics (HWWI).
  • Handle: RePEc:zbw:hwwirp:4-7

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    References listed on IDEAS

    1. Meyer, Niels I., 2003. "European schemes for promoting renewables in liberalised markets," Energy Policy, Elsevier, vol. 31(7), pages 665-676, June.
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    Cited by:

    1. Gallego-Castillo, Cristobal & Victoria, Marta, 2015. "Cost-free feed-in tariffs for renewable energy deployment in Spain," Renewable Energy, Elsevier, vol. 81(C), pages 411-420.
    2. GARCIA-ALVAREZ, María Teresa & VARELA-CANDAMIO, Laura & NOVO-CORTI, Isabel, 2013. "Renewable Energy, Electricity Market And Employment: The Case Of Spain," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 13(1), pages 131-142.
    3. Hirth, Lion, 2013. "The market value of variable renewables," Energy Economics, Elsevier, vol. 38(C), pages 218-236.
    4. Sensfuß, Frank & Ragwitz, Mario & Genoese, Massimo, 2008. "The merit-order effect: A detailed analysis of the price effect of renewable electricity generation on spot market prices in Germany," Energy Policy, Elsevier, vol. 36(8), pages 3076-3084, August.
    5. Lion Hirth, 2013. "The Market Value of Variable Renewables. The Effect of Solar and Wind Power Variability on their Relative Price," RSCAS Working Papers 2013/36, European University Institute.
    6. Weigt, Hannes, 2009. "Germany's wind energy: The potential for fossil capacity replacement and cost saving," Applied Energy, Elsevier, vol. 86(10), pages 1857-1863, October.
    7. Zamani-Dehkordi, Payam & Rakai, Logan & Zareipour, Hamidreza, 2016. "Deciding on the support schemes for upcoming wind farms in competitive electricity markets," Energy, Elsevier, vol. 116(P1), pages 8-19.
    8. Ciarreta, Aitor & Espinosa, Maria Paz & Pizarro-Irizar, Cristina, 2014. "Is green energy expensive? Empirical evidence from the Spanish electricity market," Energy Policy, Elsevier, vol. 69(C), pages 205-215.
    9. Munoz, Miquel & Oschmann, Volker & David Tabara, J., 2007. "Harmonization of renewable electricity feed-in laws in the European Union," Energy Policy, Elsevier, vol. 35(5), pages 3104-3114, May.
    10. Thure Traber & Claudia Kemfert, 2007. "Impacts of the German Support for Renewable Energy on Electricity Prices, Emissions and Profits: An Analysis Based on a European Electricity Market Model," Discussion Papers of DIW Berlin 712, DIW Berlin, German Institute for Economic Research.
    11. Sáenz de Miera, Gonzalo & del Ri­o González, Pablo & Vizcaino, Ignacio, 2008. "Analysing the impact of renewable electricity support schemes on power prices: The case of wind electricity in Spain," Energy Policy, Elsevier, vol. 36(9), pages 3345-3359, September.

    More about this item


    Renewable energy suppport schemes;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices


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