Do costs fall faster than revenues? Dynamics of renewables entry into electricity markets

Green, Richard and Léautier, Thomas-Olivier (2015) Do costs fall faster than revenues? Dynamics of renewables entry into electricity markets. TSE Working Paper, n. 15-591, Toulouse

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Official URL: http://tse-fr.eu/pub/29543

Abstract

In many countries, entry of renewable electricity producers has been supported by subsidies and financed by a tax on electricity consumed. This article is the first to analytically derive the dynamics of the generation mix, subsidy, and tax as renewable capacity increases. This enables us to complement and extend previous work by providing analytical expressions for previously obtained simulation results, and deriving additional results. The analysis yields three main findings. First, the subsidy to renewable may never stop, as the value of the energy produced may decrease faster than the cost as renewable capacity increases. Second, high renewable penetration leads to a discontinuity in marginal values, after which the subsidy and tax grow extremely rapidly. Finally, reducing the occurrence of negative prices, for example by providing renewable producers with financial instead of physical dispatch insurance, yields significant benefits.

Item Type: Monograph (Working Paper)
Language: English
Date: July 2015
Place of Publication: Toulouse
Uncontrolled Keywords: Electric power markets, Renewables, Public policy
JEL codes: D61 - Allocative Efficiency; Cost-Benefit Analysis
L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
L94 - Electric Utilities
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse), TSM Research (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 21 Sep 2015 13:08
Last Modified: 21 Mar 2018 13:31
OAI ID: oai:tse-fr.eu:29543
URI: http://publications.ut-capitole.fr/id/eprint/18433

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