Economical–environmental impact of subsidised renewable energy sources for electricity (RES-E) in the Spanish system

Abstract

In 2012, Spain obtained 68.5TWh of its electricity (25% of the total) from renewable energy sources excluding large hydroelectric power (RES-E). Subsidies, through feed-in-tariffs, for various forms of RES-E ranged from 40.2€/MWh to 321.1€/MWh and totaled 6.1 billion E, an amount that has motivated substantial criticism. This paper examines the effects of RES-E on the market price of electricity considering the merit order effect in Spain's power auction system. The M5P algorithm developed by Quinlan (1992) is used to calculate changes in the settling price in daily power auctions. Also, the value of emissions of CO2, NOx, and SOx avoided through RES-E is calculated. They are valued at $10/t, $478/t, and $1460/t, respectively. Results of the analysis show that, in 2012, RES-E caused an estimated 3.1 B€ savings in electricity expenditures due to market effects and a 0.7 B€ saving in emission costs. When subtracted from the total subsidy a net cost of RES-E of 2.3 B€ is derived. Wind, biomass, and small hydroelectric had negative net costs (i.e., net benefits) while photovoltaic and solar-thermal power had net costs. Alternative scenarios in which the production of gas-fired and coal-fired electric power are individually curtailed by 30% in comparison to the baseline scenario, while RES-E is held at the 2012 level, yielded a net cost decrease of about 300M€ for gas curtailment and a net cost increase of about 300M€ for coal curtailment.