Refunding ETS-Proceeds to Spur the Diffusion of Renewable Energies: An Analysis Based on the Dynamic Oligopolistic Electricity Market Model EMELIE

We use a quantitative electricity market model to analyze the welfare effects of refunding a share of the emission trading proceeds to support renewable energy technologies that are subject to experience effects. We compare effects of supporting renewable energies under both perfect and oligopolistic competition with competitive fringe firms and emission trading regimes that achieve 70 and 80 percent emission reductions by 2050. The results indicate the importance of market power for renewable energy support policy. Under imperfect competition welfare improvements is maximized by refunding ten percent of the emission trading proceeds, while under perfect competition the optimal refunding share is only five percent. However, under both behavioral assumptions we find significant welfare improvements due to experience effects which are induced by the support for renewable energy.emission trading, renewable energy support, experience effects, imperfect competition

German Electricity Prices: Only Modest Increase Due to Renewable Energy Expected

Consumer prices for electricity in Germany have risen considerably in recent years. These price increases are partially attributable to a strong rise in the apportionment for the promotion of renewable electricity in accordance with the German Renewable Energy Sources Act (EEG). The EEG apportionment and associated VAT currently account for approximately one-sixth of household spending on electricity. Yet the increasing generation of power from renewables leads to decreased wholesale electricity prices. As a result, the net burden on the consumer - given effective competition - is lower than the apportionment. According to modelling calculations performed by the German Institute for Economic Research (DIW), inflation-adjusted wholesale prices for electricity will only increase by 11% between 2010 and 2020 to 4.9 euro cents per kilowatt-hour (kWh), despite increasing fuel and CO2 certificate prices. In the absence of expanded deployment of renewable energy, a higher price increase of 20% can be expected. Although electricity generation from renewable sources is forecasted to more than double by 2020, the EEG apportionment borne by consumers will in real terms only be 3.64 euro cents per kWh, and thus only slightly higher than it is today. The main reason for this low growth is the fact that the tariffs for new installations are digressive, falling year by year. In addition, tariffs are diminished in real terms by price inflation. Our modelling calculations assume that legislators will take action against the recent overinvestment in the solar electricity sector. Thanks to a significant fall in the cost of photovoltaic (PV) systems, the reduction of PV tariffs can be placed on an accelerated timetable. Over the long term, the overall level of support provided under the EEG should be reduced. For the further deployment of renewable energy it is necessary to expand Germany's power grid in addition to the availability of energy storage facilities. Steps must also be taken to increase competition in electricity markets.Electricity markets, Renewable energy, Energy policy

Impacts of the German Support for Renewable Energy on Electricity Prices, Emissions and Profits: An Analysis Based on a European Electricity Market Model

Effects of renewable support legislation on electricity prices have been analyzed with a plethora of models. However, these models neglect at least one of the following aspects which we take into account in our analysis: oligopolistic market behavior of dominant firms, emission trading, restricted electricity trade and production capacities, and effects on producer prices and firm profits. In this paper we use the electricity market model EMELIE and decompose the impact of the feed-in of renewable energy in Germany into two effects: a substitution effect triggered by the displacement of conventional sources and a permit price effect induced via the ETS. We find that the renewable support increases consumer prices slightly by 0.1 Eurocent/kWh, while the producer price decreases by 0.4 Eurocent/kWh. In addition, emissions from electricity generation in Germany are reduced by 32 Mt CO2, but are hardly altered if we consider the European electricity sector in total. Finally, the profits of most firms are significantly reduced by the support policy unless the firms combine relatively carbon intensive production equipment with a loose connection to the German grid.

Comprehensive Package of Climate Protection Measures Could Substantially Decrease Cost of Emission Reductions in Germany

Seeking to play a pioneering role in climate protection, the European Union has decided to pursue a reduction of at least 20% in greenhouse-gas emissions (on 1990 levels) by the year 2020. Moreover, Europe has declared its willingness to commit itself to emission reductions of 30% over the same period if other developed countries commit themselves to similar targets and if developing countries also make an appropriate contribution. A fair distribution of the burden of emission reductions in Europe and a comprehensive package of climate protection measures in Germany could substantially reduce the cost of emission reductions for the German economy. If Germany succeeds at European level in pushing through a fair burden-sharing mechanism that takes into account the emission reductions achieved to date in the different member states, and at the same time implements a comprehensive package of climate protection measures at home, then climate protection costs can be kept low. It would be very difficult for Germany to achieve its reduction target only by shutting down nuclear installations. What are also needed, in particular, are increased exploitation of energy efficiency potentials, the further development of renewable energy sources, the improvement of the system of emissions trading, and the promotion of innovative energy technologies. If European burden-sharing were fairly distributed and if Germany were to exploit all its energy efficiency potentials, then, in order to achieve a 20% reduction in current European emissions, Germany's climate protection costs would amount to total of around 1.9 billion euro per annum up to 2020. In this case, Germany would have reduced its emissions by 31% on 1990 levels. If it were not possible to negotiate a fair distribution of the burden, and if Germany were unable to exploit the necessary energy efficiency potentials, then the reduction costs would increase to around 5.7 billion euro per annum.Climate protection, Germany, costs of climate policy

Subsidies for learning in renewable energy technologies under market power and emission trading

Under perfect competition on the output market, first best technology subsidies in the presence of learning by doing are justified by knowledge spill overs that are not accounted for by individual companies. First best output subsidies are thus depending directly on the learning effects and are, if applicable, positive. Considering electricity markets, a setting of imperfect competition is more appropriate. We show that the second best output subsidy for learning by doing in renewable energies takes the market distortion due to imperfect competition into account and is of ambiguous sign. Based on simulations with a European electricity market model, we find that second best renewable energy subsidies are positive and only insignificantly impacted by market power. By contrast, the welfare gains from an optimal subsidy are considerably higher compared to a hypothetical situation of perfect competition

Impacts of the German support for renewable energy on electricity prices, emissions and profits: an analysis based on a European electricity market model

Effects of renewable support legislation on electricity prices have been analyzed with a plethora of models. However, these models neglect at least one of the following aspects which we take into account in our analysis: oligopolistic market behavior of dominant firms, emission trading, restricted electricity trade and production capacities, and effects on producer prices and firm profits. In this paper we use the electricity market model EMELIE and decompose the impact of the feed-in of renewable energy in Germany into two effects: a substitution effect triggered by the displacement of conventional sources and a permit price effect induced via the ETS. We find that the renewable support increases consumer prices slightly by 0.1 Eurocent/kWh, while the producer price decreases by 0.4 Eurocent/kWh. In addition, emissions from electricity generation in Germany are reduced by 32 Mt CO2, but are hardly altered if we consider the European electricity sector in total. Finally, the profits of most firms are significantly reduced by the support policy unless the firms combine relatively carbon intensive production equipment with a loose connection to the German grid

Verteilungseffekte von Kapazitätsmechanismen: Auf den Typ kommt es an

Für den Ausgleich von Schwankungen der Stromnachfrage und des Stromangebotes aus erneuerbaren Energien sind Kraftwerke nötig, die auch in kritischen Situationen sicher zur Verfügung stehen. Es wird diskutiert, ob der liberalisierte Strommarkt in der Lage ist, ausreichende Investitionen anzuregen. Vielfach werden unterstützende Instrumente gefordert. Diese auch als Kapazitätsmechanismen bezeichneten Instrumente haben je nach Typ unterschiedliche Wirkung auf Stromerzeuger und -verbraucher. Unsere Modellrechnungen zeigen, dass die Gesamtbelastungen zur Erreichung einer Reservemarge von fünf Prozent im Jahr 2020 in Deutschland zwischen 0,4 und 3,1 Milliarden Euro betragen und in Summe zu deutlichen Mitnahmeeffekten bei den etablierten Stromerzeugern führen. Dem gegenüber stehen die in dieser Untersuchung nicht quantifizierten Vorteile einer Reduktion des Risikos von Stromausfällen.In order to compensate for fluctuations in electricity demand as well as electricity supply from renewables, power plants are required that are reliably available, even in critical situations. Besides an ongoing discussion whether the liberalized electricity market is capable of stimulating sufficient investment, there are frequent calls for supporting instruments. Depending on their type, these instruments, also known as capacity mechanisms, have different effects on electricity producers and consumers. Model calculations prepared by DIW Berlin demonstrate that the total burden for achieving a defined safety margin in 2020 in Germany is between 0.4 and 3.1 billion euros and that overall, it leads to considerable free-rider effects on the part of the established electricity producers. This burden is potentially offset by advantages from the reduction of the risk of blackouts, which are difficult to quantify

The moratorium on nuclear energy: No power shortages expected

With the moratorium on nuclear energy, the German federal government passed a resolution to shut down seven nuclear power plants for a period of three months. According to the calculations of DIW Berlin (German Institute for Economic Research), sufficient electricity is being produced despite the nuclear plants' removal from the grid. Electricity prices are only likely to increase slightly. The moratorium therefore does not pose a threat to the security of supply. However, with coal and gas-fired plants compensating for much of the fall in nuclear energy generation, a significant rise in greenhouse gas emissions is to be expected. An immediate shut down of all nuclear power plants is currently not an option since the remaining power plants are not able to securely provide the energy levels needed to meet demand during peak loads

Nachhaltige Energieversorgung: beim Brückenschlag das Ziel nicht aus dem Auge verlieren

Deutschlands Stromversorgung steht an einem Wendepunkt. Kohle ist wie die Kernkraft keine Zukunftstechnologie. Auf den Zubau von Kohlekraftwerken kann verzichtet werden, wenn rasch in den Ausbau der erneuerbaren Energien investiert wird. Ein Weg in eine sichere und saubere Energieversorgung ist die Nutzung existierender Kraftwerke als Brücke bis durch Speichertechnologien und Netzausbau eine Integration der erneuerbaren Energien gesichert wird.Renewable energy, Promotion policy, Nuclear energy, Germany