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Take-or-pay contracts for Renewables Deployment

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  • Angus Johnston
  • Amalia Kavali
  • Karsten Neuhoff

Abstract

Renewables require support policies to deliver the European 20% target. We discuss the requirements for least cost development and efficient operation and quantify how different schemes (i) allow for the development of a renewable energy technology portfolio; (ii) reduce rent transfers to infra-marginal technologies or better than marginal resource bases; and (iii) minimise regulatory risk and thus capital costs for new projects. Long-term take or pay contracts minimise regulatory uncertainty, create appropriate incentives for location and operation, allow for efficient system operation and seem compatible with European state aid. We discuss how property rights legislation protects existing renewables investors, and thus can ensure ongoing investment during a transition towards the new scheme.
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Suggested Citation

  • Angus Johnston & Amalia Kavali & Karsten Neuhoff, 2007. "Take-or-pay contracts for Renewables Deployment," Working Papers EPRG 0707, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg0707
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    Cited by:

    1. Klessmann, Corinna & Nabe, Christian & Burges, Karsten, 2008. "Pros and cons of exposing renewables to electricity market risks--A comparison of the market integration approaches in Germany, Spain, and the UK," Energy Policy, Elsevier, vol. 36(10), pages 3646-3661, October.
    2. Pérez de Arce, Miguel & Sauma, Enzo & Contreras, Javier, 2016. "Renewable energy policy performance in reducing CO2 emissions," Energy Economics, Elsevier, vol. 54(C), pages 272-280.
    3. Paul Koutstaal & X. van Tilburg & Michiel Bijlsma & Gijsbert Zwart, 2009. "Market performance and distributional effects on renewable energy markets," CPB Document 190, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Yu, Yang & Song, Yuhua & Bao, Haibo, 2012. "Why did the price of solar PV Si feedstock fluctuate so wildly in 2004–2009?," Energy Policy, Elsevier, vol. 49(C), pages 572-585.
    5. Boute, Anatole, 2012. "Promoting renewable energy through capacity markets: An analysis of the Russian support scheme," Energy Policy, Elsevier, vol. 46(C), pages 68-77.
    6. Roques, Fabien A., 2008. "Technology choices for new entrants in liberalized markets: The value of operating flexibility and contractual arrangements," Utilities Policy, Elsevier, vol. 16(4), pages 245-253, December.
    7. Christian Haas & Karol Kempa, 2023. "Low-Carbon Investment and Credit Rationing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 86(1), pages 109-145, October.
    8. Paul Koutstaal & Michiel Bijlsma & Gijsbert Zwart & X. van Tilburg, 2009. "Market performance and distributional effects on renewable energy markets," CPB Document 190.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    9. Buckman, Greg, 2011. "The effectiveness of Renewable Portfolio Standard banding and carve-outs in supporting high-cost types of renewable electricity," Energy Policy, Elsevier, vol. 39(7), pages 4105-4114, July.
    10. Mulder, Peter & de Groot, Henri L.F., 2013. "Dutch sectoral energy intensity developments in international perspective, 1987–2005," Energy Policy, Elsevier, vol. 52(C), pages 501-512.
    11. El Kasmioui, O. & Verbruggen, A. & Ceulemans, R., 2015. "The 2013 reforms of the Flemish renewable electricity support: Missed opportunities," Renewable Energy, Elsevier, vol. 83(C), pages 905-917.
    12. Woo, C.K. & Zarnikau, J. & Moore, J. & Horowitz, I., 2011. "Wind generation and zonal-market price divergence: Evidence from Texas," Energy Policy, Elsevier, vol. 39(7), pages 3928-3938, July.
    13. Arjen de Vetten, 2007. "Incentives and Regional Coordination in Employment Services," CPB Memorandum 190.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    14. Thapar, Sapan & Sharma, Seema & Verma, Ashu, 2016. "Economic and environmental effectiveness of renewable energy policy instruments: Best practices from India," Renewable and Sustainable Energy Reviews, Elsevier, vol. 66(C), pages 487-498.
    15. Botta, Enrico, 2019. "An experimental approach to climate finance: the impact of auction design and policy uncertainty on renewable energy equity costs in Europe," Energy Policy, Elsevier, vol. 133(C).
    16. Yu, Yang & Li, Hong & Bao, Haibo, 2016. "Price dynamics and market relations in solar photovoltaic silicon feedstock trades," Renewable Energy, Elsevier, vol. 86(C), pages 526-542.
    17. Lüthi, Sonja & Prässler, Thomas, 2011. "Analyzing policy support instruments and regulatory risk factors for wind energy deployment--A developers' perspective," Energy Policy, Elsevier, vol. 39(9), pages 4876-4892, September.
    18. Barradale, Merrill Jones, 2010. "Impact of public policy uncertainty on renewable energy investment: Wind power and the production tax credit," Energy Policy, Elsevier, vol. 38(12), pages 7698-7709, December.

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    More about this item

    Keywords

    Renewable support policy; Property rights; Transition; Regulatory risk;
    All these keywords.

    JEL classification:

    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • P14 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Property Rights

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