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Grid Investment and Support Schemes for Renewable Electricity Generation

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  • Johannes Wagner

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

  • Johannes Wagner, 2019. "Grid Investment and Support Schemes for Renewable Electricity Generation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    • Handle: RePEc:aen:journl:ej40-2-wagner
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    Cited by:

    1. Simshauser, Paul & Billimoria, Farhad & Rogers, Craig, 2022. "Optimising VRE capacity in Renewable Energy Zones," Energy Economics, Elsevier, vol. 113(C).
    2. Lukas Schmidt & Jonas Zinke, 2023. "One Price Fits All? On Inefficient Siting Incentives for Wind Power Expansion in Germany under Uniform Pricing," The Energy Journal, , vol. 44(4), pages 21-52, July.
    3. Simshauser, Paul, 2024. "On static vs. dynamic line ratings in renewable energy zones," Energy Economics, Elsevier, vol. 129(C).
    4. 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.
    5. Gautier, Axel & Jacqmin, Julien & Poudou, Jean-Christophe, 2021. "Optimal grid tariffs with heterogeneous prosumers," Utilities Policy, Elsevier, vol. 68(C).
    6. Anselm Eicke & Tarun Khanna & Lion Hirth, 2020. "Locational Investment Signals: How to Steer the Siting of New Generation Capacity in Power Systems?," The Energy Journal, , vol. 41(6), pages 281-304, November.
    7. Grimsrud, Kristine & Hagem, Cathrine & Lind, Arne & Lindhjem, Henrik, 2021. "Efficient spatial distribution of wind power plants given environmental externalities due to turbines and grids," Energy Economics, Elsevier, vol. 102(C).
    8. Simshauser, Paul & Newbery, David, 2024. "Non-firm vs priority access: On the long run average and marginal costs of renewables in Australia," Energy Economics, Elsevier, vol. 136(C).
    9. Gorman, Will & Mills, Andrew & Wiser, Ryan, 2019. "Improving estimates of transmission capital costs for utility-scale wind and solar projects to inform renewable energy policy," Energy Policy, Elsevier, vol. 135(C).
    10. Grimm, Veronika & Sölch, Christian & Zöttl, Gregor, 2022. "Emissions reduction in a second-best world: On the long-term effects of overlapping regulations," Energy Economics, Elsevier, vol. 109(C).
    11. McDonald, Paul, 2024. "Interrelationships of renewable energy zones in Queensland: localised effects on capacity value and congestion," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 818-833.
    12. 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.
    13. Simshauser, Paul, 2021. "Renewable Energy Zones in Australia's National Electricity Market," Energy Economics, Elsevier, vol. 101(C).
    14. 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).
    15. Athawale, Rasika & Felder, Frank A., 2023. "Overbuilding transmission: A case study and policy analysis of the Indian power sector," Energy Policy, Elsevier, vol. 174(C).
    16. McDonald, Paul, 2023. "Locational and market value of Renewable Energy Zones in Queensland," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 198-213.
    17. Meus, Jelle & De Vits, Sarah & S'heeren, Nele & Delarue, Erik & Proost, Stef, 2021. "Renewable electricity support in perfect markets: Economic incentives under diverse subsidy instruments," Energy Economics, Elsevier, vol. 94(C).

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    JEL classification:

    • F0 - International Economics - - General

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