Renewable Energy Support Policies Research Articles

Right and Duty: Investment Risk Under Different Renewable Energy Support Policies

AbstractRenewable energy projects are subject to risk due to the uncertainty of future electricity prices and the amount of energy produced. Public support usually consists of some form of guarantee, either on the price received per MWh supplied or the return on investment per MW installed. This support reduces the investor’s risk, which is then assumed by the regulator. However, most of these policies do not only grant the investor the right to receive a guaranteed payment but also limit its potential benefits (i.e., impose an obligation). We propose a model with analytical solutions in which, considering the randomness of the market price, as well as that of the energy production, we quantify the risk removed under different types of regulations and assign a value to both the rights and the obligations that each policy entails. Finally, we apply the model to the case of Spain, which has undergone several changes in its green energy support system in recent years. Our results indicate that in the context of low electricity prices, the obligations imposed by most of these policies are negligible compared to the rights received. By contrast, in the context of high electricity prices and increasingly competitive renewable energy sources, the assumed obligations become more notable to the point of the support policy becoming a liability. Nevertheless, a sufficiently risk-averse investor may be incentivized by a policy with negative expected regulatory costs.

Exploring the efficacy of renewable energy support policies in uncertain environments: A real options analysis

This paper explores the impact of various renewable energy support policies on investor behavior and environmental value. Specifically, the study investigates the effects of fixed feed-in tariff (FIT) and tradable green certificates (TGC) on investor’s flexibility and environmental value under conditions of uncertainty. Real options theory and envelope theory are employed to analyze these uncertainties, with an empirical analysis of China’s electricity market serving as the basis for the study. The results of the analysis demonstrate that the use of TGC can lead to higher environmental value for utility-scale photovoltaic (PV) projects in China. For onshore wind, substituting FIT with TGC may be more appropriate. However, for offshore wind projects, FIT may be more suitable due to their increased vulnerability to uncertainty. Additionally, the study finds that greater support is required for projects deployed under FIT policies.

An Empirical Study of Economic Growth Target on Renewable Energy Development in China

Countries may improve renewable energy support policies in the context of economic growth aims and supporting renewable energy development by examining the link between economic growth target(EGT)and renewable energy development(RED). This study explores the effects of economic growth objectives on the development of renewable energy sources and the moderating function of government-market interactions using panel data collected from 30 provinces between 2003 and 2019. The results show that the economic growth objective has an inverted U-shaped effect on the expansion of renewable energy, and all of these findings pass the significance test at the 1% level. The endogeneity and robustness tests are conducted using the one-stage lag approach for explanatory factors, replacement of explained variables, and instrumental variables. The findings indicate that the "inverted U-shaped" relationship between the goal of economic growth and the advancement of renewable energy is steady and that the lag will eventually shorten. Additionally, excessive economic growth can harm interactions between the government and the market, which would hinder the advancement of renewable energy.

Does the change in incentive policies promote renewable energy power generation in China?

ABSTRACT To reduce the financial burden brought by the feed-in tariff (FIT) policy, China is shifting its renewable energy support policy to the renewable portfolio standard with tradable green certificates (RPS/TGC). Moreover, the two policies are being implemented in parallel in the transitional period. In this context, this study investigates the game between renewable energy power plants (REPPs) regarding electricity outputs and tradable green certificate (TGC) prices under different renewable energy support policies practiced in China. We focus on analyzing the impact of policy changes on the competing REPPs’ decisions and the renewable electricity market with TGCs. The results show that implementing the RPS/TGC policy inhibits the development of renewable electricity unless the subscription of TGCs is promoted. Government subsidy arrears significantly affect electricity outputs and TGC subscriptions. The low subscription rate of TGCs is caused not by the subsidy-based TGC pricing mechanism but by government subsidies. This suggests that the government should implement the RPS/TGC policy, and demand-side power consumption responsibility weights should also be strengthened to promote TGC subscriptions.

The impact of differentiated feed-in tariffs on the resource misallocation of wind power: From the perspectives of the intensive and extensive margins

The widespread implementation of feed-in tariff (FIT) policies has played a crucial role in fostering the development of wind power, with their positive effects firmly established in numerous studies. However, the impact of regionally differentiated FIT policies on the misallocation of wind power resources remains a topic of contention, with limited research dedicated to this area. This paper aims to address this gap by examining the implications of such policies on the intensive and extensive margins of wind power installed capacity in China, shedding light on the underlying mechanisms driving resource misallocation. Empirical findings indicate that, concerning the intensive margin, the policy amplifies the concentration of wind power investments in regions characterized by abundant wind resources but low electricity demand. These regions present favorable conditions for large-scale wind farms with cost advantages, consequently exacerbating the misallocation of wind power resources. However, on the extensive margin, the policy promotes the likelihood of locating small and medium-sized wind farms in regions with poor wind resources but higher tariff rates, thus partially mitigating resource misallocation. In summary, China's policy hampers wind power investments in regions characterized by high electricity demand but limited wind resources. This suggests that the negative impact on the intensive margin outweighs the positive impact on the extensive margin. The findings of this study bear significant implications for the development of renewable energy support policies, particularly in countries grappling with substantial regional disparities in renewable energy resources.

Government subsidies, market competition and the TFP of new energy enterprises

Exploring the relationship between government subsidies, market competition, and the total factor productivity (TFP) of new energy enterprises will help countries optimize renewable energy support policies in the context of carbon neutrality constraints and energy demand growth. Based on the panel data of 145 listed new energy enterprises from 2007 to 2020, this paper investigates how government subsidies affect the TFP of new energy enterprises and the moderating effects of market competition. Our main findings are as follows: (1) Government subsidies positively affect the TFP of new energy enterprises. Heterogeneity analysis suggests that government subsidies have a larger effect on the TFP of non-SOEs, midstream and upstream enterprises, and smaller enterprises. (2) Industry market competition negatively moderates the effect of government subsidies on TFP, while enterprise competition power has a positive moderating effect. The marginal effect of government subsidies is significantly positive only when the industry market competition is below a certain threshold or the enterprise competitive power exceeds a certain threshold. (3) Government subsidies enhance the TFP by promoting invention and utility model innovation of new energy enterprises. In addition, market competition significantly moderates the relationship between government subsidies and utility model innovation, thereby moderating the marginal effect of government subsidies on TFP. The findings contribute to a better understanding of the relationship between government support, market competition, and new energy development.

International expansion of renewable energy capacities: The role of innovation and choice of policy instruments

Which renewable energy (RE) policy instrument is most effective in expanding the international diffusion of RE and what is the role of innovation? We consider rich policy and patent data for 189 countries and territories to investigate these diversely debated questions for wind and solar photovoltaic capacities. This allows us, firstly, to contribute to the limited evidence on the effect of RE innovation on RE diffusion and its interrelated influence with RE support policies. Secondly, we can evaluate the disentangled individual policies' effectiveness in a broad instrument-country context. Thirdly, we control for the inherent endogeneity of policy instruments and innovation. We find that RE innovation, which appears to be largely policy-induced, is among the most promising ways to increase RE capacities. The most effective policy instruments tend to be quotas with certificate trading, tendering, and fiscal instruments that provide specific investment support, i.e. investment tax credits and capital subsidies. Less tangible and projectable measures, such as the most commonly implemented sales-related tax reductions and RE targets, are least effective. While interactions between instruments influence the composition of a well-designed policy mix, there are also differences in the policies' effectiveness and role of innovation depending on the countries' level of development.

How to design renewable energy support policies with imperfect carbon pricing?

Based on the emission trading scheme (ETS), this study built a design framework of renewable energy support policies (RES), which is employed to assess the interaction between RES and ETS. For RES, we consider two policy instruments: feed-in-tariff (FIT) and renewable portfolio standards (RPS). Based on the partial equilibrium model, taking the case of China’s electricity market, this study quantitatively discusses the implementation effects of six different policy mix scenarios from three aspects: emission reduction, production of green electricity, and social welfare. According to the results, there were big differences among the implementation effects of different RES instruments based on ETS. The renewable subsidy policy, on the whole, is better than renewable portfolio standards in terms of emission reduction, but worse in terms of improving the production of green electricity. In addition, different from the renewable subsidy policy, the renewable portfolio standards can reduce social welfare. When the emission quota is eased, RES can be implemented to significantly improve social welfare. These simulation results inspire China for the design of effective energy policies.

Decision-making behavior of power suppliers in the green certificate market: A system dynamics analysis

Green certificate trading systems have been developed to improve renewable energy support policies and innovative development mechanisms. To more intuitively analyze the decision-making behavior of power suppliers under green certificate schemes, we constructed a system dynamics-based model and carried out a case study using the scenario analysis method. The model clearly shows the complex logical relationship among the factors involved and reveals the decision-making process of the power producers of green certificates. This paper is also relevant for scholars from various countries seeking to understand the trading strategies of green certificate mechanisms and provides a reference for concerned decision-making bodies. The results indicate that under different scenarios and considering the restrictions and effects of the renewable portfolio standard (RPS) quota ratio, the transaction cost ratio and penalty mechanisms, compared with green power enterprises, thermal power enterprises are willing to enter the green certificate market for trading as the government's support for RPS increases. Finally, relevant policy suggestions are put forward to promote the development of renewable energy in China.

Policy implications of spatially differentiated renewable energy promotion: A multi-level scenario analysis of onshore wind auctioning in Germany

Auctions have been introduced in many countries as a useful alternative for renewable energy support. However, they often lead to a high concentration of renewable energy power plants at productive sites, at the expense of other, less favorable sites. This paper studies the impact of alternative renewable energy auction schemes on the promotion of renewable energy in Germany, using a novel multi-level approach—analyzing auctioning on the national, north/south, and federal states level, respectively. First, using a GIS tool, the onshore wind potential is studied at a high regional and temporal resolution. The results of this analysis show a considerable untapped onshore wind potential in the southern federal states of Germany. Second, an onshore wind power auction model is developed by using a system dynamics approach. Finally, the policy support payments are compared for different auction designs by using an electricity market simulation model. The findings suggest that more bidders from the southern federal states could win in the regional auctions. Detailed spatial analysis reveals a trade-off between balanced diversity of bidders and the average auction price. We conclude that regional auctioning can indeed lead to significant support payment savings, and should thus be considered in renewable energy support policy design.

Whether feed-in tariff can be effectively replaced or not? An integrated analysis of renewable portfolio standards and green certificate trading

Nowdays, both the renewable portfolio standards and the green certificate trading policy have become the critical renewable energy policies for supporting the photovoltaic power generation firms. Whether the above emerging policies can effectively replace the feed-in tariff policy or not has become a key issue for China. To explore this problem, this paper establishes an evolutionary game model to analyze the impact of photovoltaic policies on government and photovoltaic power generation firms, and constructs a system dynamics model to simulate the evolution results according to different scenarios of game strategies and photovoltaic policies. According to the study's evolution and simulation analysis, the following implications can be obtained. (1) The renewable portfolio standards policy has significant advantages over the feed-in tariff policy according to the photovoltaic development, but its incentive measures still need to be promoted to reduce the time lag in the policy response of most photovoltaic firms. (2) The initial willingness of stakeholders and the subsidy price have a significant impact on the trading volume of tradable green certificates, but the social welfare of photovoltaic firms is mainly related to the subsidy price. (3) The total amount of government cash subsidy is smaller than the social effect, is the prerequisite of obtaining the appropriate renewable energy support policy for promoting both the photovoltaic development and the economic growth.

Financing Power: Impacts of Energy Policies in Changing Regulatory Environments

Power systems with increasing shares of wind and solar power generation have higher capital costs and lower operational costs than power systems based on fossil fuels. This increases the importance of the financing costs for total system cost. We quantify how renewable energy support policies can affect the financing costs by addressing regulatory risk and facilitating hedging. We use interview data on wind power financing costs from the EU and model how long-term contracts signed between project developers and energy suppliers impact financing costs. Regression analysis of investors’ financing costs and an analytical model of off-takers financing costs reveal that between the support policies, the costs of renewable energy deployment differ by around 30 percent, but can be significantly lower or higher, depending on the financial situation of energy suppliers.

The Impact of Carbon Prices on Renewable Energy Support

This paper examines how optimal renewable energy (RE) support (RES) policies need to be adjusted to account for carbon prices. We show theoretically and empirically that changing carbon prices requires adjusting RE production subsidies due to two different motives: First, RE premiums need to be reduced to reflect the carbon value embedded in the market price. Second, RE premiums and feed-in tariffs need to be adjusted once a fuel switch away from coal towards gas power occurs. This adjustment is necessary to account for changes in the marginal external benefit of RE. For the case of the UK, we estimate the optimal RE subsidies and their adjustments due to a fuel switch. Furthermore, we use numerical simulations to analyze the impact of varying carbon prices on optimal RES. We show that the necessary adjustment due to a fuel switch is empirically rather small, whereas RE premiums must be phased out with increasing carbon prices due to the increasing reflection of the carbon cost in the electricity market price. Finally, a fuel switch increases solar-induced abatement, whereas it wind-induced abatement is rather invariant to a fuel switch. Yet, the differentiation of RE subsidies between wind and solar power is modest.

De-risking Renewable Energy Investments in Developing Countries: A Multilateral Guarantee Mechanism

Summary Mitigation of global warming requires substantial investment in electricity generation from renewable sources. A large share of new generation capacity is required in regions with adverse financing conditions. We propose a global guarantee mechanism to reduce risk premia of renewable energy investments by means of risk pooling and increased market efficiency. Policymakers could establish this mechanism by scaling up existing international risk guarantee initiatives. We estimate the net present value of overall savings at US$2018 1.5 trillion globally for investments by 2030, with the largest relative savings (between 20.5% and 22%) in Sub-Saharan Africa and the Maghreb. The savings from such a mechanism outweigh its estimated average yearly operating cost. By lowering the cost of decarbonization in high-risk countries, the proposed mechanism offers policymakers a tool to make current global mitigation pledges more achievable and enables the global community to pursue more ambitious climate action.

Development of Renewable Energy in China, USA, and Brazil: A Comparative Study on Renewable Energy Policies

Countries differ in terms of their socio-economic development, population growth, and energy consumption. Many countries still depend on conventional energy to supply enough energy source for their demand, while some have made considerable progress in making the transition to renewable/sustainable energy sources. Owing to the increasing demand and drawbacks of conventional energy sources, policies can play a major role in encouraging and increasing the uptake of renewable energy (RE) technologies. In this paper, a general overview on the RE activities in the three leading countries—China, Brazil, and the United States of America (USA)—is presented. Moreover, a comparative analysis on the implementations of the RE support policies is conducted. The linear regression analysis technique is applied to develop several models for the three countries in order to investigate the effect of different policies on RE. The main contributions of this study are establishing a link between RE support policies and RE development (in terms of the installed capacity) in the three countries under study, and providing models that can be used in estimating RE development using RE policy data. In addition to this, some models are developed to investigate the relationship between RE installed capacity and the patents. The linear regression analyses suggest that RE policies promote the development of RE installed capacity in the three countries in different proportions. For example, it is found that each additional wind policy will increase the RE wind capacity in China, Brazil, and the USA by 1.63, 0.689, and 1.576 GW, respectively. Moreover, the economic instruments turn out to be more effective in promoting the RE installed capacity in the USA and Brazil, while the policy support and regulatory instruments are the most influential policy categories in China. Furthermore, the linear regression analyses indicate the existence of a positive significant relation between the number of patents and the total RE installed capacity in the three countries.

An analytical approach to estimate structural and behavioral impact of renewable energy power plants on LMP

Implementation of renewable energy support policies in many countries for the sake of energy security and climate change mitigation worldwide raises the importance of renewable energy power plants (REPPs) in analyzing power market features. In this article, an analytical method is introduced to examine the effect of REPPs on locational marginal price (LMP). To this end, taking into account REPPs, according to the social welfare maximization problem of the independent system operator (ISO), a new decomposition for LMP is proposed to analytically express the impact of the strategic behavior of conventional generation companies (GenCos) and the power system structure on LMP. The structural section of LMP is decomposed into four components to differentiate between the effect of GenCos and REPPs. The well-known Q-Learning (QL) algorithm models the GenCos’ decision-making process. The results prove that REPPs can change both the structural and behavioral components of the LMP and highlight the significance of GenCos’ strategic behavior. The results demonstrate that not considering the features of the power system in the design of support policies might raise the likelihood of congestion or the probability of strategic behaviors from GenCos, against the objectives of these policies.

Renewable energy support policy evaluation: The role of long-term uncertainty in market modelling

Policy makers are tasked with selecting, designing, and implementing policies to support the transition to a sustainable power system. As part of the task, they often turn to models to quantify and compare the options available to them. In this work, we investigate the importance of the approach to representing long-term uncertainty in the modelling used to evaluate different decarbonisation or renewable support policies. We compare six different policies options; a cap on CO2 emissions (as with a cap and trade scheme), a CO2 price, a renewable capacity target, a green certificates scheme, a renewable generation subsidy, and a renewable capital grant.In a case study of a small power system, we find that using common modelling approaches that attempt to capture uncertainty as multiple different independent scenarios (such as scenario analysis or Monte-Carlo simulation) perform poorly at representing the reaction of a competitive electricity market as measured by a stochastic optimisation model. We find that a policy maker using this approach to make decisions could set a policy 55% more restrictive than required to meet their target.Further, we find that a deterministic model that ignores uncertainty can underestimate carbon abatement costs by up to 86%. Incorporating uncertainty as individual scenarios only slightly improves this result and biases the estimated costs between price and quantity based approaches. Modelling scenarios individually underestimates the cost of quantity targeting policies by up to 66% and overestimates the cost of price based policies by up to 4%.Finally, we find that incorporating uncertainty as individual scenarios results in wind being selected as the most cost efficient technology to respond to decarbonisation policies, on average. However, when considering that decision makers must invest under uncertainty, solar capacity is preferable. The results provide a strong case for the use of the stochastic optimisation approach to incorporating long-term uncertainty into electricity market modelling for renewable energy support policy analysis, despite the additional computational burden.

Policy learning or politics as usual? Explaining the rise and retrenchment of renewable electricity support policies in Europe

ABSTRACTI assess the contribution of policy learning to changes in renewable energy support policies in the European Union (EU), focusing on the evolution of the ‘Feed-in Tariff’ in Germany and the United Kingdom, considering both ‘endogenous’ (responses to the effects of existing policy within the country) and ‘exogenous’ (responses based on external experience of the policy) learning in shaping the design and operation of the mechanism as policy shifted from an expansionary to a retrenchment phase. I evaluate the analytical value of a policy learning approach compared with other explanations for such policy changes, particularly those which draw upon more conventional political drivers such as political parties, interest groups and institutional conditions at the domestic and EU levels. While there are signs in both cases that policy learning has informed changes in the policy in certain respects, the principal drivers of, and constraints upon, change have been political.

An assessment of supply-side and demand-side policies in EU-28 household electricty prices

An increase in household electricity prices has been taken place in the European Union in last years, which has been strongly influenced by the regulation component. This paper focuses on an empirical assessment of both supply-side and demand-side policies in the European Union over the period 2000-2015. More specifically, the analysis of the electricity industry liberalisation process and renewable energy support policies (from supply-side), as well as, energy taxes (from demand-side) has been developed in order to contribute to the present debate about the effect of these factors on household electricity prices. The results suggest that the liberalisation process has involved greater household electricity prices. Regarding solar photovoltaic energy support policies, the costs of quota obligation systems seem also to result in greater household electricity prices. However, energy taxes do not have a significant influence on these prices. Based on these results, recommendation actions are proposed for policy-makers.

Policy transfer processes and renewable energy penetration: a comparative analysis of Peru, Thailand, and Uganda

BackgroundLow-carbon technologies must be widely adopted at a large scale to address climate change and enhance access to affordable, reliable and sustainable energy. The uptake of those technologies is often supported by specific policies developed at a national or regional level and those policies, like the technologies themselves, can diffuse from one place to another. This paper sheds some light on this ‘policy transfer’ and investigates the dynamics, the actors and the processes involved. We illustrate what happens when renewable energy support policies in one country inspire renewable support policies in another country using three case studies in Peru, Thailand and Uganda as examples.ResultsUsing an adapted version of the policy transfer framework first elaborated by Dolowitz and Marsh (Polit Stud 44:343–57, 1996; Governance 13:5–23, 2000), we describe the policy transfer process in the three case study countries according to several criteria. We find that policy transfer is not a straightforward process where a ‘borrower’ country simply adopts policies from a ‘lender’ country, but instead a complex process where many actors - national and international – interact to shape the outcome of the process. And while experiences particularly in the EU as well as international developments have influenced the policy transfer in case study countries significantly, domestic issues also play a key role in shaping the transferred policies and in adapting them to local contexts. Moreover, the policy transfer process is not an one-off event, but a continuous process where iterative learning helps the policies to evolve over time.ConclusionsPolicy transfer is a complex matter, involving many stakeholders during a continuous process over time. The Dolowitz and Marsh framework proved useful to analyse policy transfer and the actors involved although questions for further research remain. For instance, against what kind of criteria should the ‘success’ of a policy transfer be measured? Moreover, while comparing three illustrative case studies is a first, useful step, having a larger set of case studies and data might enhance our understanding of the details of the processes involved even further.