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Prices vs. Quantities: Incentives for Renewable Power Generation - Numerical Analysis for the European Power Market

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  • Nagl, Stephan

    (Energiewirtschaftliches Institut an der Universitaet zu Koeln)

Abstract

This paper outlines the e ffects of weather uncertainty on investment and operation decisions of electricity producers under a feed-in tariff and renewable quota obligation. Furthermore, this paper tries to quantify the sectoral welfare and investments risks under the diff erent policies. For this purpose, a spatial stochastic equilibrium model is introduced for the European electricity market. The numerical analysis suggests that including the electricity market price in renewable policies (wholesale price + x) reduces the loss of sectoral welfare due to a renewable policy by 11-20 %. Moreover, investors face an only slightly higher risk than under fixed price compensations. However, electricity producers face a substantially larger investment risk when introducing a renewable quota obligation without the option of banking and borrowing of green certi cates. Given the scenario results, an integration of the hourly market price in renewable support mechanisms is mandatory to keep the financial burden to electricity consumers at a minimum. Additionally, following the discussion of a European renewable quota after 2020, the analysis indicates the importance of an appropriate banking and borrowing mechanism in light of stochastic wind and solar generation.

Suggested Citation

  • Nagl, Stephan, 2013. "Prices vs. Quantities: Incentives for Renewable Power Generation - Numerical Analysis for the European Power Market," EWI Working Papers 2013-4, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    • Handle: RePEc:ris:ewikln:2013_004
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    More about this item

    Keywords

    RES-E policy; price and quantity controls; mixed complementarity problem;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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