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Club goods and a tragedy of the commons: the Clean Energy Package and wind curtailment

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  • David Newbery

    (Faculty of Economics, University of Cambridge)

Abstract

The EU’s Clean Energy Package is a club to collectively increase renewables and reduce CO2 emissions. At high levels of wind penetration, surplus wind that cannot be exported must be curtailed. Marginal curtailment is 3-4+ times the average curtailment, but even in an efficiently designed market, price signals for wind investment are given by average not marginal curtailment, creating a « tragedy of the commons » that requires a corrective charge to restore efficiency. The paper sets out a model calibrated to Ireland in 2026, showing the source of distortion, and derives new formulae for the capacity credit of wind, the learning subsidy and corrective charge needed to deliver the efficient level of renewables penetration, and estimates of their magnitude.
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Suggested Citation

  • David Newbery, 2020. "Club goods and a tragedy of the commons: the Clean Energy Package and wind curtailment," Working Papers EPRG2036, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg2036
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    Cited by:

    1. Dongwei Zhao & Sarah Coyle & Apurba Sakti & Audun Botterud, 2022. "Market Mechanisms for Low-Carbon Electricity Investments: A Game-Theoretical Analysis," Papers 2212.06984, arXiv.org, revised Aug 2023.
    2. Pär Holmberg & Thomas Tangerås, 2021. "Strategic Reserves versus Market-wide Capacity Mechanisms," Working Papers EPRG2109, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    3. Newbery, David M., 2023. "High renewable electricity penetration: Marginal curtailment and market failure under “subsidy-free” entry," Energy Economics, Elsevier, vol. 126(C).

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    More about this item

    Keywords

    wind curtailment; market failures; corrective charges;
    All these keywords.

    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
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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