Abstract
As most types of renewable generation technologies are relatively expensive, at the prevailing electricity market prices, government support is crucial to promote their share in the generation mix. Nonetheless, designing a suitable support scheme is not a straightforward task, not least because of the competing and sometimes conflicting objectives of policies. This chapter reviews renewable support models and highlights their main specifications in relation to providing incentive for investment and cost reduction, as well as compatibility with renewable policy design principles. It concludes that the choice of support scheme depends on the characteristics of the electricity market, technology, economic institutions, public acceptance, and the ability of the model to reduce risk to investors and provide efficiency.
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Energy-only electricity market, the prevailing model of the EU region, is a form of electricity market in which remuneration to generators is based on only the energy component (so there is no capacity payment). In this model, price spikes at time of scarcity are expected to create sufficient incentive for investment.
References
Fischer, C., & Preonas, L. (2010). Combining Policies for Renewable Energy: Is the Whole Less Than the Sum of Its Parts? International Review of Environmental and Resource Economics, 4, 51–92.
Krupa, J., & Poudineh, R. (2017). Financing Renewable Electricity in the Resource-Rich Countries of the Middle East and North Africa: A Review (Working paper no. EL 22). Oxford Institute for Energy Studies.
Poudineh, R., Sen, A., & Fattouh, B. (2016). Advancing Renewable Energy in Resource-Rich Economies of the MENA (Working paper no. MEP 15). Oxford Institute for Energy Studies.
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Poudineh, R., Brown, C., Foley, B. (2017). Renewable Energy Support Policy Design. In: Economics of Offshore Wind Power. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-66420-0_4
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DOI: https://doi.org/10.1007/978-3-319-66420-0_4
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