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The Social Efficiency of Electricity Transition Policies Based on Renewables. Which Ways of Improvement?

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  • Manuel Villavicencio and Dominique Finon

Abstract

Climate and energy policies use to be embedded in joint packages with seeming coherent goals on which the electricity sector is targeted. However, the complexity of power systems is rarely fully apprehended while setting up such packages, particularly when technical externalities from variable renewable energies (VRE) become widespread and different sources of flexibility need to be considered. We use a detailed power system model subject to a combination of RE goals and CO2 caps to seize their interplays and propose a methodology to rank the resulting equilibriums in terms of environmental effectiveness and economic efficiency. We show that: only modest levels of VRE develop without subsidies regardless the level of the CO2 cap; technical externalities create trade-offs between VRE penetration and environmental effectiveness; new flexibility technologies may correct or exacerbate these externalities, impacting effectiveness, costs, and coherence of such packages, requiring a sensitive target hierarchization and fine-tuning of such instruments.

Suggested Citation

  • Manuel Villavicencio and Dominique Finon, 2022. "The Social Efficiency of Electricity Transition Policies Based on Renewables. Which Ways of Improvement?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 6).
    • Handle: RePEc:aen:journl:ej43-6-villavicencio
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    JEL classification:

    • F0 - International Economics - - General

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