Renewable Support Policies Research Articles

Why Are Households Willing to Pay for Renewable Energy? Lessons From Romania

Renewable energy is seen as a key tool in addressing the dual issue of increasing energy demand and climate change mitigation. In the current geopolitical climate, it may also play a key long-term role in increasing energy security. In order to reach the ambitious green energy targets set for each European Union member state public support for fiscal and other support mechanisms is required. The purpose of this paper is to determine to what extent the population in the North-East region of Romania is willing to make financial sacrifices for further development of renewable energy. We also explore what lifestyle and socio-demographic factors influence willingness to pay. We applied a discrete choice experiment on a sample of 602 households from the populous North-East region of Romania. Our results show that the creation of new jobs and the increase of the national energy independence, followed by the reduction of pollution are societal benefits that would convince households to pay a premium in order to support renewable energy development. Increased local budgets for rural communities resulting from the taxation of new energy companies is not one of the desired outcomes of green energy development. The study is useful in the design of adequate fiscal and renewable support policies and serves companies by identifying willingness to pay influence factors, as well as by demonstrating a market segmentation procedure.

Environmental policy and the direction of innovation towards products or processes: Insights from text mining techniques applied to wind power patents

In the framework of the European Green Deal, which aims to steer research and innovation toward climate neutrality, this article studies the extent to which different types of policies (direct and/or indirect) supporting renewable sources of energy can guide research and development (R&D) efforts toward process or product innovations. To this end, it proposes a new method for automatically analyzing whether a patent is a product or a process. More precisely, it proposes a semantic analysis of patent documents that generates a continuous measure of the patent’s relative position between product and process. This allows several limitations of the economic literature to be overcome, and provides insights into the mechanisms at work, notably how the use of these new techniques can help optimize environmental policies. This methodology is applied to the wind power industry, emphasizing the non-neutrality of renewable support policies in driving innovation.JEL classification: O31, C81, C89.

Strategic Policymaking for Implementing Renewable Portfolio Standards: A Tri-Level Optimization Approach

Appropriately designed renewable support policies can play a leading role in promoting renewable expansions and contribute to low emission goals. Meanwhile, ill-designed policies may distort electricity markets, put power utilities and generation companies on an unlevel playing field and, in turn, cause inefficiencies. This paper proposes a framework to optimize policymaking for renewable energy sources, while incorporating conflicting interests and objectives of different stakeholders. We formulate a tri-level optimization problem where each level represents a different entity: a state regulator, a power utility and a wholesale electricity market. To solve this tri-level problem, we exploit optimality conditions and develop a modification of the Column-and-Cut Generation (C&CG) algorithm that generates cuts for bilinear terms. The case study based on the ISO New England 8-zone test system reveals different policy trade-offs that policymakers face under different decarbonization goals and implementation scenarios.

The impact of variable renewable energy resources on power system reliability

Transitioning the electric power sector to rely more on wind and solar photovoltaics (WPV) has long been cited as a potential solution to reducing harmful greenhouse gas emissions associated with fossil fuel electricity production. An under-explored implication of this transition, however, is whether increasing the amount of net generation supplied by WPV negatively impacts power system reliability? In this paper, we empirically investigate the preceding question using an unbalanced panel dataset of utility-scale operations between 2013 and 2017. Disruptions in power system reliability are measured by the frequency and duration of power system disruptions experienced by end-consumers. Results suggest net generation from WPV, on average, has a significant positive impact on the length of power system disruptions experienced, but only at low levels of net generation from WPV. As net generation from WPV increases, the duration of power system disruptions decreases. To provide insight into the policy implications of these results, we forecast disruptions in power system reliability, assuming different renewable energy policy scenarios for states across the United States with active renewable support policies in place. We estimate the economic costs of forecasted disruptions using an open-source, interruption cost estimate calculator.

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.

Incumbent’s Bane or Gain? Renewable Support and Strategic Behavior in Electricity Markets

Incumbent firms play a decisive role in the success of renewable support policies. Their investments in renewables as well as their operational strategies for their conventional CO2 emitting technologies affect the transition to a sustainable energy system. We use a game theoretical framework to analyze incumbents’ reactions to different renewable support policies, namely feed-in tariff (FIT), feed-in premium (FIP), and auction-based policies. We show that a regulator should choose a support scheme based on concerns about either market power or emission abatement: in FIP-based policies, the incumbent’s strategic behavior leads to lower CO2 emissions, but a higher market price compared to FIT-based policies. Furthermore, for FIP-based policies, the regulator might want to incentivize incumbents directly (to further reduce CO2 emissions) or newcomers (to further reduce market power). Particularly in FIP-based auctions, incumbents have the incentive to obtain all auctioned capacity, which could lead to an unchanged market price despite the entrance of new capacity into the market.

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.

Capacity vs energy subsidies for promoting renewable investment: Benefits and costs for the EU power market

Policy makers across Europe have implemented renewable support policies with several policy objectives in mind. Among these are achieving ambitious renewable energy targets at the lowest cost, reducing CO2-emissions and promoting technology improvement through learning-by-doing. Using a detailed country-level model of generation markets, we address the question of how policies that subsidize renewable energy (feed-in premia and renewable portfolio standards (RPSs)) versus capacity (investment subsidies) impact the mix of renewable investments, electricity costs, renewable share, the amount of subsidies, and consumer prices in the EU electric power market in 2030 and how they interact with other policies such as the EU ETS. Our analysis shows that subsidies of energy output are cost-effective for achieving renewable energy targets in the short run, whereas policies tied to capacity installation yield more investment and might be more effective in reducing technology costs in the longer term. The difference in costs between these two policy options diminish with higher CO2-prices. Although the differences are significant, they are smaller than cost impacts of other renewable policy design features, namely the effect of not allowing EU members to meet their individual targets by trading renewable credits with other member states.

Cross-Border Energy Exchange and Renewable Premiums: The Case of the Iberian System

In 2002, the European Union set a target of 10% electricity interconnection capacity for 2020: a target that has been further extended to 15% by 2030. Cross-border interconnection of regional/national electricity systems will allow the EU to enhance its security of supply and to integrate more renewables into energy markets. Although the EU has a common renewable directive, every Member State has its own renewable support policy. For the case of Spain, consumers pay the renewable premium in their electricity bills; however, consumers would not be overburdened if premiums were counter-balanced with the energy-cost reduction due to the merit-order effect of renewables. When two markets are interconnected, the energy exchange through the interconnection yields certain expected rent transfers due to the market rules. However, this exchange is also accompanied by other unforeseen rent transfers related to the regional/national policies on renewables. To the authors’ knowledge, the identification and quantification of these indirect rent transfers has not been previously addressed. This paper analyses and quantifies how the premiums on regional/national renewables are distributed between neighbouring countries through cross-border exchanges. The analysis focuses on the Iberian/Spanish system and its neighbours, although the methodology could be extended to other systems. To this end, data on the market and premiums has been considered, as well as the exchanges between France, Spain, Portugal, and Morocco, for the years 2015–2017. The main finding of this work is that the Spanish system, due to the lack of a coordinated/harmonized renewable premium policy, has been “importing” about 40 M€/year of renewable premium from France and 17 M€/year from Portugal while “exporting” about 66 M€/year towards the Moroccan systems.

Market Integration and Wind Generation: An Empirical Analysis of the Impact of Wind Generation on Cross-border Power Prices

European power markets have become more integrated and renewables have a significant effect on power prices and cross-border exchanges. This paper investigates empirically how the effects of renewables are affected by market expansion across two adjacent countries (France and Germany), based on market data and proprietary data on book orders. We find that wind production lowers power prices on average and increases volatility, not only domestically but also across borders. Using multiple counterfactuals, we examine how our results depend on the level of interconnection and find that further interconnection capacity would decrease price volatility in both countries since the benefits of a larger market would outweigh the contagion effects of volatility. Our findings have important policy implications as they demonstrate the need to coordinate support policies for renewables and policies to support transmission capacity expansion in order to mitigate the impact of volatility on power prices in neighboring power markets.

The UK's Levy Control Framework for renewable electricity support: Effects and significance

There is a long-standing debate over price vs. quantity approaches to supporting the deployment of renewable electricity technologies. In the context of a recent shift from quantity to price-based support, the UK has also introduced a new form of budgetary framework, the Levy Control Framework (LCF). The introduction of the LCF has been very important for investors but has received relatively little attention in the academic literature. The paper gives an overview of the LCF, explores its effects on renewables policy, on consumers and on investor confidence arguing that an unintended consequence of its introduction has been to increase uncertainty, through interactions with underlying support mechanisms. A number of problems with the current scope and design of the LCF are noted. It is argued that the LCF is best understood as aimed at avoiding a political backlash against renewable support policy in a context where the benefits of such policy are concentrated economically and socially. The paper concludes by placing the LCF within a wider context of a shift towards greater budgetary control over renewable energy support policy across European countries.

What is the Cost of Negative Bidding by Wind? A Unit Commitment Analysis of Cost and Emissions

We use a unit commitment (UC) model to quantify the operational impacts of subsidizing wind generation when energy prices are negative. Such prices occur increasingly often in U.S. and European Union (EU) markets. Subsidies such as production tax credits, feed-in tariffs, and renewable energy credits motivate renewable generators to submit negative price offers; this lessened flexibility increases system operation and management costs and, in some cases, $\hbox{CO}_{2}$ emissions when energy prices are negative. Our simulations of large negative bids can also be interpreted as representing EU policies of granting wind absolute dispatch priority. Applications to four hypothetical systems with high wind penetration and distinct generation mixes quantify the UC and dispatch effects of negative bids. Larger negative bids lead to less wind spillage (reducing the 2.8% average curtailment under $0 bids to 1.0%), more conventional plant startups, higher system costs, and, in many cases, higher total ${\rm CO}_{2}$ emissions (by up to 2%). In some systems, wind power's effective incremental emissions are as high as coal's. This impact depends strongly on generation mix, carbon price, and the size of the negative bids. In general, there can be significant economic and, often, environmental benefits to reforming renewable support policies to encourage flexibility in operations.

A Harmonized Approach Towards Capacity Adequacy in the EU Internal Electricity Market: Policy Options to Reconcile Unilateral Capacity Mechanisms.

This master thesis aims at identifying policy options, which facilitate a more harmonized approach towards capacity adequacy in the EU internal market. Although there is no evidence for any acute EU-wide generation capacity shortage, European electricity markets are increasingly under stress: Major EU utilities announced to mothball or decommission their CCGT, CHP and other gas-fired peak units, since these generation units struggle to recover their costs at power exchanges. But these dispatchable peak-load plants are highly needed in European electricity markets with rising shares of intermittent renewable supply.In the absence of a supranational capacity adequacy policy, several EU member states have implemented or consider introducing capacity mechanisms on a pure unilateral basis in order to remedy the missing-money-problem of their utilities’ conventional power plants. As these unilateral capacity adequacy regimes have diverging regulatory rationales and try to solve very different domestic capacity adequacy issues, it becomes challenging to reconcile them within the EU internal market. Given that the needs to invest in new conventional generation capacities and cost recovery prospects of certain power plant technologies highly diverge between the member states, a EU standard capacity adequacy regime would be too premature. However, these unilateral capacity mechanisms harm the functioning of the internal market and undermine its central features of market coupling and physical integration, which significantly contribute to domestic supply security. Both price-coupling of regional power markets and enhanced grid interconnectors optimize cross-border electricity flows and ensure efficient investment allocation of generation and transmission capacities in the long-run. But non-harmonized unilateral capacity mechanisms are likely to cause inefficient overcapacities and lead to adverse long-term structural changes in generation investments across the internal market.The thesis finds that the legal and regulatory framework of the EU to harmonize these unilateral capacity adequacy regimes is rather weak and leaves many loopholes to the member states. The EU could persuade national regulators and TSOs to evaluate a common approach towards capacity adequacy assessments and forecasting methodologies. Moreover, the EU could ensure that national regulators and TSOs consider regulatory alternatives to demonstrate the necessity and appropriateness of complex capacity adequacy regimes as well as to facilitate explicit cross-border participation of foreign generators, although many technical and regulatory challenges remain unsolved.In view of the limited scope of action for the EU, there are five policy options, which could facilitate a more harmonized approach towards capacity adequacy in the EU internal market: First, national regulators and TSOs should conceive and mutually agree on EU-wide adequacy assessments and forecasting methodologies, which would represent a powerful instrument to bring transparency into the regulatory debate on the necessity of purely unilateral capacity mechanisms and objectify investment needs in new generation capacity across member states’ markets. Second, member states and the EU should focus on a predictable EU-wide regulatory environment with coherent carbon, market design, and renewable support policies and avoid any overlapping regulatory objectives between these policies. Third, national regulators and TSOs should ensure a more stringent implementation of cross-border transmission grid plans to alleviate local load and grid congestions, which have forced some member states to implement capacity mechanisms and directly remunerate generation units in congested regions. Fourth, instead of introducing complex capacity mechanisms, national regulators and TSOs should allow for greater competition among generators to offer short-term ancillary services on existing real-time balancing markets, because they would provide a stronger price signal to invest in flexible generation capacity. Finally, the EU should require national regulators and TSOs to facilitate explicit cross-border participation of foreign generators in unilaterally designed capacity mechanisms to minimize the adverse cross-border market impacts.

Residential photovoltaic plant: environmental and economical implications from renewable support policies

Photovoltaic technology has grown globally over the past 4 years at a remarkable rate (from 24 GW worldwide in 2009 to 138 GW in 2013) and is on its way to becoming a strategic electricity source (EPIA 2014a, b). This paper aims to determine whether the objectives of environmental protection and economic profit can coexist in an investment in residential photovoltaic power generation facilities in Italy. Currently, investors are choosing the principle of economic maximisation; in this way, even if a photovoltaic system is designed to reduce carbon emissions, it is not guaranteed that the carbon emissions will be reduced at a minimum level (environmental maximisation). The government support to promote renewable energy is essential for photovoltaic investments. In this article, the effectiveness of supporting renewable electricity policies (such as feed-in-tariff and tax deduction) has been assessed for the multiple combinations of energy output and electrical energy required; 2,304 numerical experiments (related to 2012–2014) demonstrate the effects of policies that could be adopted for supporting renewable electricity generation. Furthermore, is presented a comparison among the profitability of residential photovoltaic facilities in 2012, 2013 and 2014 that are affected by different investment costs and several incentive mechanisms.

The dynamic impact of carbon reduction and renewable support policies on the electricity sector

Carbon reduction and renewable energy policies are implemented in Europe to improve the sustainability of the electricity sector while achieving security of supply. We investigate the interactions between these policies using a dynamic investment model. Our analysis indicates that both policies are necessary to achieve a sustainable power sector. However, renewable energy generation significantly affects carbon markets and could lead to very low prices. These would attract investments in carbon intensive technologies, locking the sector into future higher emissions. To contrast this effect, policy makers may introduce a floor price in the carbon market or adjust the emissions quota periodically.

Cooperation mechanisms to achieve EU renewable targets

There are considerable benefits from cooperating among member states on meeting the 2020 renewable energy sources (RES) targets. Today countries are supporting investments in renewable energy by many different types of support schemes and with different levels of support. The EU has opened for cooperation mechanisms such as joint support schemes for promoting renewable energy to meet the 2020 targets. The potential coordination benefits, with more efficient localisation and composition of renewable investment, can be achieved by creating new areas/sub-segments of renewable technologies where support costs are shared and credits are transferred between countries.Countries that are not coordinating support for renewable energy might induce inefficient investment in new capacity that would have been more beneficial elsewhere and still have provided the same contribution to meeting the 2020 RES targets. Furthermore, countries might find themselves competing for investment in a market with limited capital available. In both cases, the cost-efficiency of the renewable support policies is reduced compared to a coordinated solution.Barriers for joint support such as network regulation regarding connection of new capacity to the electricity grid and cost sharing rules for electricity transmission expansion are examined and examples given. The influence of additional renewable capacity on domestic/regional power market prices can be a barrier. The market will be influenced by for example an expansion of the wind capacity resulting in lower prices, which will affect existing conventional producers. This development will be opposed by conventional producers, whereas consumers will support such a strategy.A major barrier is the timing of RES targets and the uncertainty regarding future targets. We illustrate the importance of different assumptions on future targets and the implied value of RES credits. The effect on the credit price for 2020 is presented in an exemplary case study of 200 MW wind capacity.

Germany's Energy Transition Under Attack: Is There an Inscrutable German Sonderweg ?

The German energy transition repeatedly faces harsh critiques questioning its economic and environmental merits. This article defends the energy transition and argues that Germany has chosen an economically efficient and particularly forceful approach to securing a sustainable energy supply. Though current expenditures are high, the long-term benefits of transforming the energy system to a renewables-based system are likely to outweigh present investment costs. Furthermore, support policies for renewables are not redundant-as some critics claim-but instead complement other policy instruments, such as the emissions trading scheme. This article also addresses the motives behind the discrediting attacks on the German energy policy regime. Defensive actions by beneficiaries of the former energy market structure are only to be expected, but the attacks from liberal economists are astonishingly fierce.

Optimal wind power deployment in Europe—A portfolio approach

Geographic diversification of wind farms can smooth out the fluctuations in wind power generation and reduce the associated system balancing and reliability costs. The paper uses historical wind production data from five European countries (Austria, Denmark, France, Germany, and Spain) and applies the Mean-Variance Portfolio theory to identify cross-country portfolios that minimise the total variance of wind production for a given level of production. Theoretical unconstrained portfolios show that countries (Spain and Denmark) with the best wind resource or whose size contributes to smoothing out the country output variability dominate optimal portfolios. The methodology is then elaborated to derive optimal constrained portfolios taking into account national wind resource potential and transmission constraints and compare them with the projected portfolios for 2020. Such constraints limit the theoretical potential efficiency gains from geographical diversification, but there is still considerable room to improve performance from actual or projected portfolios. These results highlight the need for more cross-border interconnection capacity, for greater coordination of European renewable support policies, and for renewable support mechanisms and electricity market designs providing locational incentives. Under these conditions, a mechanism for renewables credits trading could help aligning wind power portfolios with the theoretically efficient geographic dispersion.

The politics and policy of energy system transformation—explaining the German diffusion of renewable energy technology

To arrest climate change, a transition to a low-carbon economy must take place quite rapidly, within a century at most. Thus, the rate of diffusion of new technologies such as those for the generation of electricity from renewable energy sources becomes a central issue. This article explores the reasons for the particularly rapid spread of two such technologies in Germany, wind turbines and solar cells. We trace this diffusion to the nature of the policy instruments employed and to the political process which led to the adoption of these instruments. The analysis demonstrates how the regulatory framework is formed in a ‘battle over institutions’ where the German parliament, informed and supported by an advocacy coalition of growing strength, backed support policies for renewables sourced electricity against often reluctant governments and the opposition from nuclear and coal interests. It also demonstrates that this major political and environmental achievement carries a modest price if we consider total costs to society, i.e. including both subsidies to coal and the negative external economies of coal.