The value of carbon emission reduction induced by Renewable Energy Sources in the Italian power market

Abstract

In this paper we investigate the role of Renewable Energy Sources (RES) on the Italian power exchange. The purpose of this analysis is to assess the impact of electricity generation from RES on the reduction of CO2 emissions and on the value of the power supply. The study is based on hourly zonal micro-data for 2018 from the Italian power market and identifies the amount of avoided carbon emissions related both to crowded-out thermal units and to potential “load-shedding” situations. Finally, the investigation leads to the assessment of both the economic value of RES penetration and to the economic value of the CO2 emissions avoided by renewable power generation. The results show that the annual savings of carbon emissions nationwide amount to nearly 22 Mt CO2 whereas the value of CO2 reduction is estimated at €348 million. The economic savings from large and small-scale wind and solar generation in 2018 account for nearly €19 billion and welfare is increased by 44%, thus confirming the net positive effect arising from RES promotion.