RES Support Research Articles

The diffusion of renewable energy production in European countries: the role of incentives

ABSTRACT The green technologies studied in this work can be considered non-drastic innovations, the diffusion process for which is largely influenced by government sponsorship. The study analyses heterogeneous non-hydroelectric RES-E (solar, wind, biomass and geothermal) support scheme policies in European countries and evaluates their effects on promoting installed capacity and production of electricity in twenty-eight European countries for the years 1995–2015. By applying panel data analysis, we estimate the relative effectiveness of financial and quota system incentives, taking into account the timing of adoption of these policies. The results suggest that price-based incentives (FIP and FIT), compared to quantity-based incentives (RPS), are the most effective mechanisms for diffusing non-hydroelectric renewable energy technologies. A novelty of the research concerns the evidence of a strong incidence of feed-in premium (FIP) incentive. In countries adopting FIP incentives, the production of renewable electric energy registers a step ahead performance compared to those adopting FIT and RPS. The results are confirmed in the robustness check estimations when RES-E sources are unbundled. The paper concludes with a discussion of some policy implications of the results.

Analysis of world practices for stimulating the development of renewable energy sources. A case study for Russian conditions

This document analysis the methods of stimulating renewable energy (RES) in various countries, describes the barriers and problems that hinder the development of alternative energy. Studies conducted in countries with a developed renewable energy sector will allow us to conclude that the development incentive systems (Feed-in-tariff (FIT), Renewable Energy Portfolio Standard (RSP), auctions, reverse auctions and various tax incentives) have had the required impact and the government of such countries has moved to establish parity between renewable and traditional energy, as well as to optimize the systems for promoting the development of clean energy. Green energy in countries that are actively developing renewable energy are building models and infrastructures based on the experience and methods of solving the problems of countries with a developed RES support system.

An Ex-Post Assessment of RES-E Support in Greece by Investigating the Monetary Flows and the Causal Relationships in the Electricity Market

One way to perceive the electricity market is as a network of actors connected through transactions and monetary flows. By exploring the monetary flows in the electricity market, one adopts a holistic view which can provide insights on the interactions between different components of the benefits and costs, as well as on the possible conflicts or alliances between the involved actors of the system. The importance of such an analysis becomes even more evident when considering if the system’s state would change due to either the effectuation of a policy measure or a shift in the external drivers of the system. Additionally, by identifying conditions of conflicting interests between the involved actors, one can devise a roadmap of least-resistance for a policy measure to attain its goals. Our work is based on the premise that understanding and quantifying the monetary flows in the electricity market can contribute to the efficiency assessment of policy interventions in the market. We present a structured analytical framework and the results of a quantitative analysis, based on available public domain data, for the identification of the main drivers and interactions that governed the major monetary flows in the Greek wholesale electricity market, from 2009 to 2013 and the ex-post assessment of the market impact of the feed-in-tariffs scheme that was in place during this period.

On international renewable cooperation mechanisms: The impact of national RES-E support schemes

The deployment of renewable cooperation mechanisms within the European Union (via statistical transfers, joint support schemes and joint projects) is expected to increase in the near future. Such cooperation mechanisms can significantly reduce the compliance cost for meeting renewable energy targets. Nevertheless, as it is known that ill-designed national support instruments distort renewable investment and production decisions, it can also be expected that these impact the performance of cooperation mechanisms. In this paper, we develop a bi-level two-country competitive equilibrium model that analyzes the impact of national RES-E support instruments on the performance of renewable cooperation mechanisms. Furthermore, we assess the efficiency of two international cooperation mechanisms (statistical transfers and joint support schemes) and compare it to the situation without renewable cooperation. Based on an analytical derivation and a numerical example, we first confirm that fixed feed-in premiums are the globally most efficient instrument, given production-based quotas (in MWh). Other national instruments (feed-in tariffs and capacity-based subsidies) can distort renewable investment decisions, and are sub-optimal. Second, the employment of statistical transfers always outperforms the no-renewable cooperation case, independent of the national support instruments. Third, statistical transfers are preferred over joint support schemes when employing sub-optimal national policy instruments. In fact, it even is possible that sub-optimal joint support schemes (i.e. not based on the fixed feed-in premium) perform worse than no renewable cooperation at all. Finally, we also consider the country-level distributional effects and conclude that country-level incentives for renewable cooperation may not align with the global optimum, i.e. national policy makers might be incentivized to constrain their cooperation levels.

Do Almost Mature Renewable Energy Technologies Still Need Dedicated Support Towards 2030?

The discussion on whether and how to continue support for almost mature renewable electricity (RES-E) technologies, such as onshore wind and PV, has recently intensified. In this paper we analyze arguments in the literature in favor and against the phase-out of renewables support in the context of increasingly competitive RES-E technologies. We conclude that there are good reasons to continue dedicated RES-E policies beyond 2020 for those technologies. Dedicated RES-E support can provide a predictable, secure investment framework that lowers the risk premiums required by investors and therefore reduces the capital costs of RES-E. In addition, there are still significant cost reduction potentials for these technologies. The increased use of renewables has multiple socio-economic benefits in addition to climate change mitigation. These arguments are still valid when looking at the current market situation characterized by oversupply and low prices on both the CO2 market and some power markets in Europe. Since renewables are not the main reason for the current oversupply, it would not be effective to take actions towards restoring market equilibrium in the form of radical or overall phase-out of RES-E support.

Cost-efficiency benchmarking of European renewable electricity support schemes

This paper assesses the cost efficiency of renewable electricity (RES-E) support schemes in Europe for the 2000–2015 period based on data collected by CEER from national regulators. A cost efficiency indicator (CEI) and Data Envelopment Analysis (DEA) were applied to measure the economic efficiencies of RES-E support schemes in Europe for the two most deployed renewable technology: photovoltaics and wind. The proposed CEI provides a relative and comparable measure of economic efficiency of support, measuring the cleaned (net of whole sale price) unit support value of RES-E production over consumption. The DEA assessment includes more input variables measuring economic performance of EU member states in RES-E support, where the levelised cost of electricity (LCOE) served as input alongside the CEI.After a detailed literature review introduces previous studies on both types of efficiency measures for renewable deployment the results are presented and explained. This study reveals that although the performance of PV support improved rapidly in the time period, wind generated electricity remained more cost efficient. The DEA found wind support schemes in North European countries (Norway, Sweden, Ireland and Denmark) and PV support schemes in Romania, Malta, Cyprus and Italy to be notably cost efficient. Some of these countries are the traditional large-scale producers (like Denmark or Italy) but ‘newcomers’ also performed well due to technology learning resulting in low entry costs. The DEA shows that financing conditions are perhaps as important as resource endowment in determining cost efficiency of support schemes across EU countries. Based on the outcomes we conclude with recommendations to improve the design for more market oriented RES-E support schemes as required by new EU legislation.

An economic analysis of the interactions between renewable support and other climate and energy policies

The EU climate and energy policy landscape is characterized by a combination of instruments to achieve the EU 2020 and 2030 targets. In this paper, some of the most relevant interactions between RES-E support and a wide array of other climate and energy policies including the EU ETS, the Energy Taxation Directive and the Effort Sharing Directive in the European Union are assessed. A qualitative methodology is applied considering different assessment criteria such as effectiveness and efficiency of RES-E support and support costs but also distribution of costs between different stakeholder groups. Our analysis shows that, despite a common perception that interactions lead to conflicts, this is not really the case when the discussion is broadened and considers different assessment criteria. While adding one instrument or policy to another worsens one criterion, it usually improves another. Furthermore, the results of the interactions are not only specific to the policy, but also depend on the choice of instruments and design elements.

Rationales for technology-specific RES support and their relevance for German policy

In order to achieve cost-effective RES-E deployment it is often argued that technology-neutral support schemes for renewables are indispensable. Against this background, RES-E support policies making widely use of technology differentiation in remuneration settings, e.g. across the EU, are frequently criticized from a theoretical point of view. However, in this paper we provide a systematic critique of the technology neutrality concept as a foundation for designing policy support schemes in the RES-E technology field. Specifically, the main objective of the paper is to scrutinize the arguments for technology-neutrality, and discuss three conceptual arguments for why technology-specific support schemes could in fact help minimize the societal costs of reaching future RES-E targets. We also briefly address different political economy concerns, which could constrain the choice of cost-effective policy support schemes, and that have to be taken into account for economic policy advice. For empirical illustration of the key arguments we refer to the case of German RES-E policy-making. The central conclusion from this paper is that technology-specific RES-E support schemes may generate significant economic benefits, particularly if technology markets work imperfectly and in second-best policy settings with additional non-internalized market failures.

A Comprehensive ExxPost Assessment of the Italian RES Policy: Deployment, Jobs, Value Added and Import Leakages

A massive deployment of renewable electricity generation took place in Italy in less than eight years. A generous feed-in tariff, coupled with favourable institutional conditions, allowed the installation of more than 28 GW of PV, wind and other RES technologies. By 2014, Italy has already attained its 2020 goals on RES production. Besides, environmental objectives and compliance with EU targets, the policy was aimed at promoting green jobs and industrial production of RES technologies. Exante economic analyses advocated considerable economic and industrial spill-overs from the introduction of RES support policies. Despite official rhetoric and ex-ante studies about jobs and economic growth associated to RES adoption, at scholarly level there is no consensus on the actual effects and implications of these policies on National economies. This paper provides a first comprehensive ex-post analysis of the Italian case, filling an important gap. Our analysis is carried out with the development of a specific input-output model, with refined technological vectors and with the internalization of trade coefficients. We show that the effects have been unequivocally lower than expected; that most of the jobs created belonged to the service sector and not to the industrial sector and that the value added was much lower than expected due to significant export leakages.

Investment in Renewables under Uncertainty: Fitting a Feed-in Scheme into ETS

We analyze incentives to invest in renewable energy technologies induced by the overlap of two types of policies: feed-in schemes and carbon mitigation instruments. We find that results differ markedly depending on the specific types of policies in place, reflecting different impacts of uncertainty. As a result, the recent reform to the EU-ETS system that has established the Market Stability Reserve (MSR), effective in 2019, requires to appropriately fine-tune the direct RES-E support schemes. We show that this may involve moving away from feed-in tariffs towards feed-in premia. Our results suggest that the schemes currently adopted in Germany and in Italy, broadly based on feed-in premia for large generators and on feed-in tariffs for the small ones, could well fit also the post-MSR EU carbon mitigation policy. To the contrary, other countries (e.g. France and the U.K.) may have to modify their support schemes as the MSR will become operational.

Towards a green energy economy? The EU Energy Union’s transition to a low-carbon zero subsidy electricity system – Lessons from the UK’s Electricity Market Reform

The 2015 EU Energy Union Package proposes integrating renewables into the market, just as the UK has moved away from Premium Feed-in Tariffs (FiTs) for renewable electricity supply (RES-E) to something closer to the standard FiT, which, when auctioned, demonstrated a 3% real fall in the weighted average cost of capital (WACC). The UK, which has experimented with nearly all forms of RES-E support, offers the evidence base for designing the Energy Union’s RES-E support. Innovation needs a further redesign to deliver adequate funding, best done through country contributions to an EU-wide innovation competition.

Energy and climate hand-in-hand: Financing RES-E support with carbon revenues

In Italy, the cost of support for renewable electricity (RES-E) is largely recovered through the “A3 surcharge”, which weighs heavily on electricity bills. Using household survey data, we show the A3 surcharge is markedly regressive. Carbon taxation in the non-ETS sector is envisaged as a means to reduce CO2 emissions cost-effectively and generate revenue to lower the A3 surcharge. A non-ETS carbon tax would be less regressive than the A3 surcharge and its cost would be more evenly distributed across households. We calculate the revenue of a €20/tCO2 non-ETS carbon tax would have allowed a cut in the A3 surcharge of about 68% in 2011, and 39% in 2012. The impact of the carbon tax plus the reduced A3 surcharge would have been less regressive, but the cost higher for most households. The restrictions imposed in the simulations mean the results are only appropriate to render first-round effects of the reform. Policy relevanceIn the vast majority of the EU Member States, the cost of RES-E support is largely paid by electricity consumers, most often through specific surcharges. Rising electricity prices are a common concern given the implications for competitiveness and equity. The Member States facing this issue could conveniently address it through environmental tax reforms consistent with the Climate and Energy Package. Replacing RES-E surcharges with carbon taxes in the non-ETS sector would permit cost-effective reduction of CO2 emissions while allocating the cost of RES-E support more equitably. The difference in regressivity would stem from the different consumption patterns of home fuels (including electricity) and motor fuels across income distribution. A cross-country comparison of energy household budget shares proves the structural nature of this difference between home fuels and motor fuels. Moreover, the notion that electricity consumers should pay for RES-E support is questioned on the grounds that electricity is a basic necessity good and RES-E support is a means of providing public goods, notably energy security and climate protection.

Res-E Support Policies in the Baltic States: Electricity Price Aspect (Part II)

Abstract Increasing volumes of electricity derived from renewable energy sources (RES-E) affect the electricity market prices and the prices for final electricity consumers in the Baltic States. The results of a multivariate regression analysis show that in 2013 the RES-E contributed to decreasing the electricity market prices in the Baltic States. However, the final electricity consumers pay for the promotion of RES-E through the approved RES-E component which has a tendency to increase. It is estimated that in 2013 the net benefits from the wind electricity promotion were achieved in Lithuania and Latvia while the net cost - in Estonia. This suggests that the economic efficiency of the wind electricity support scheme based on the application of feed-in tariffs was higher than that based on the feed-in premium.

RES support in Russia: Impact on capacity and electricity market prices

Russian renewable energy policy has undergone changes following an establishment of targets for installed capacity and power production using renewable energy sources and the introduction of new capacity based support scheme for renewable energy. The forecasted amount of future renewable power will not provide enough power production to meet growing demand for renewable energy; although, it will help with modernization of the energy sector and development of renewable technology and innovation. At the same time, the capacity support scheme for renewable energy may adversely affect capacity prices and become an additional burden for industrial consumers, who are already paying the cost of capacity support for conventional power plants, so-called Capacity Delivery Agreements (CDAs). This work assesses the impact of the new capacity based support scheme on capacity and electricity price formation. Modeling results show that the impact of capacity support for renewable energy is small compared to that of capacity support for conventional energy, suggesting that the Russian energy production mix will continue to be dominated by fossil fuel based generation.

A Note on the Inefficiency of Technology- and Region-Specific Renewable Energy Support: The German Case

Renewable energy (RES-E) support schemes have to meet two requirements in order to lead to a cost-efficient renewable energy mix. First, RES-E support schemes need to expose RES-E producers to the price signal of the wholesale market, which incentivizes investors to account not only for the marginal costs per kWh ( $\overline{MC}$ ) but also for the marginal value per kWh ( $\overline{MV^{el}}$ ) of renewable energy technologies. Second, RES-E support schemes need to be technology- and region-neutral in their design (rather than technology- and region-specific). That is, the financial support may not be bound to a specific technology or a specific region. In Germany, however, wind and solar power generation is currently incentivized via technology- and region-specific feed-in tariffs (FIT), which are coupled with capacity support limits. As such, the current RES-E support scheme in Germany fails to expose wind and solar power producers to the price signal of the wholesale market. Moreover, it is technology- and region-specific in its design, i.e., the support level for each kWh differs between wind and solar power technologies and the location of their deployment (at least for onshore wind power). As a consequence, excess costs occur which are burdened by society. This paper illustrates the economic consequences associated with Germany’s technology- and region-specific renewable energy support by applying a linear electricity system optimization model. Overall, excess costs are found to amount to more than 6.6 Bn Euro $_{2010}$ . These are driven by comparatively high net marginal costs of offshore wind and solar power in comparison to onshore wind power in Germany up to 2020.

The EU climate and energy policy: what about the new targets for 2030?

The EU climate and energy policy for 2020 is summed up by three goals called 20-20-20: a) reduce GHG emissions by 20% compared to 1990; b) save 20% of the EU’s energy consumption compared to projections for 2020; c) develop a 20% share of renewable energies in overall EU energy consumption by 2020. In 2013 the EU Commission issued a Green paper to launch a debate on what should be the objectives for 2030 and early 2014 has published its proposals. This article shares the priority given in the Commission’s communication of January 2014 to the objective of reducing greenhouse gas emissions and argues that this should be the only target set in quantitative terms. Instead, the proposal of continuing to make use of the EU-ETS, although reformed with the introduction of a reserve stability fund, is not shared. In place of this solution, it is suggested to introduce a carbon tax, to be revised (and raised) periodically, based on the reduction of GHG emissions. Its level should be such that the coal power plants without CCS become no longer competitive in a few years. A less preferable solution would be to maintain the cap-and-trade with a floor and ceiling price. The promotion of renewables certainly deserves to be continued, but without quantitative mandatory targets that are not required neither at the European level nor at the level of individual Member States. Moreover, the RES support has to avoid distorting the internal market for electricity. Instead, a common European system of promotion of renewable should be introduced, with clear and limited objectives. Finally, the increase in energy efficiency should also continue to be promoted, but without any quantitative target that would be very difficult to establish and monitor.

Regulatory design for RES-E support mechanisms: Learning curves, market structure, and burden-sharing

Drawing from relevant experiences in power systems around the world, this paper offers a review of existing policy support mechanisms for RES-E, with a detailed analysis of their regulatory implications. While recent studies provide an account of current RES-E support systems, in this paper we focus on some of the impacts these mechanisms have on the overall energy market structure and its performance. Given the rising importance of RES-E in systems everywhere, these impacts should no longer be overlooked.

Renewable electricity consumption in the EU-27: Are cross-country differences diminishing?

The aim of this paper is to analyse cross-country differences for shares of renewable electricity in the EU-27 for the period 1996–2005. We carry out a standard convergence analysis and then examine the evolution of the entire distribution, namely the external shape, intra-distributional dynamics and ergodic distribution. Our main results are as follows. First, there has been a clear convergence pattern for renewable electricity shares across countries. Second, the shape of the distribution has varied significantly over time, with more countries positioned around the mean in 2005 than in 1996. Third, the analysis shows that intra-distributional mobility has been relatively high, especially in those countries with the highest share in the initial year of our sample. Fourth, in spite of this, large cross-country differences will likely persist for RES-E shares in the hypothetical long-term equilibrium, which implies that a major impulse to national RES-E support policies will be necessary in the coming years to shorten this gap.

Renewable policy in a competitive environment: key issues

This paper focuses on renewable policy and how the increasing number of renewable technologies can be integrated into liberalised markets for power generation and CO2 reduction options. Five key aspects regarding renewable energy sources have been identified and will be analysed: market conformity, compatibility with other policies, technological development, effectiveness and economic efficiency of the RES support and international coordination and burden sharing. No optimal support scheme exists that stimulates all RES-E technologies, neither over their entire technological lifecycle nor at the same time. Investment incentives are normally a very suitable instrument for supporting more immature technologies in the R&D phase. Once if they are more mature, i.e. technologies are already available on the market for commercial use, fixed feed-in tariffs are appropriate instruments due to their secure character. If the technology is sufficiently matured and the market is large enough to guarantee competition among the market actors, a quota obligation based on TGC or a premium feed-in tariff can be the right support tools. These instruments are with respect to adaptation to operation on the common power market. One necessary pre-condition for this step is that competition on the conventional power market exists too.

Prospects of Renewable Energy Development in the European Electricity Sector: Results of the Simulation Tool Green-X

This paper presents the results of selected simulation runs based on the computer model Green-X. The results suggest that the most significant efficiency gains -measured in terms of premiums to support renewables - can be achieved by optimising national RESE support measures - between two thirds and three quarters of the overall cost reduction potential can be attributed to the optimisation of national support schemes. Further efficiency improvements at a considerably lower level (at about one quarter to one third of the overall cost reduction potential) are possible through an EU-wide harmonisation of support schemes provided that a common European power market exists. Regional coordination represents an essential step towards EU wide harmonisation; half the additional cost benefits of an EU-wide harmonisation can already be tapped through regional coordination compared to the nationally optimised schemes. If a harmonised policy is pursued, technology-specific support is superior to non-specific support with respect to cost minimisation.