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Comparison of Incentive Policies for Renewable Energy in an Oligopolistic Market with Price-Responsive Demand

Miguel Pérez de Arce and Enzo Sauma

Year: 2016
Volume: Volume 37
Number: Number 3
DOI: 10.5547/01956574.37.3.mdea
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Abstract:
This article compares different incentive policies to encourage the development of renewable energy (RE). These incentive policies (carbon tax, feed-in tariff, premium payment and quota system) are modeled in a simplified radial power network, using price-responsive demand. Most results are derived assuming an oligopolistic Cournot competitive framework and that the costs of subsidies are covered by the government (i.e., customers do not directly pay back for the subsidies). We compare the different RE incentive schemes at different congestion levels in terms of energy prices, RE generation, CO2 emissions, and social welfare. We find that the effectiveness of the different incentive schemes varies significantly depending on the market structure assumed, the costs of renewable energy, and the subsidy recovery method considered. Subsidy policies (FIT and premium payments) are more cost effective in reducing CO2 emissions than those policies that apply penalties or taxes, when assuming oligopoly competition and that customers do not directly pay back for the subsidies. Quota and carbon tax policies are more cost effective when assuming that either a perfectly competitive electricity market takes place or customers directly pay back for the subsidies. Additionally, we show that, in the feed-in tariff system, there is an interaction among incentive levels for renewable energy technologies. Given a certain feed-in tariff price to be set for a particular renewable technology, this price influences the optimal feed-in tariff price to be set for another technology.



A Compound Real Option Approach for Determining the Optimal Investment Path for RPV-Storage Systems

Benjamin Hassi, Tomas Reyes, and Enzo Sauma

Year: 2022
Volume: Volume 43
Number: Number 3
DOI: 10.5547/01956574.43.3.bhas
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Abstract:
The use of residential Photovoltaic-Storage systems may produce large benefits to owners and has expanded rapidly in recent years. Nonetheless, large uncertainties regarding the profitability of these systems make it necessary to incorporate flexibilities in their economic evaluations. This paper offers a new method to evaluate the compound flexibility of both the option of delaying investments and the option of further expanding the capacity of solar photovoltaic modules and batteries during the investment horizon. Flexibility is modeled as a compound real option, whose value is computed using a novel method that we call Compound Least Squares Monte Carlo (CLSM). The model is applied to the investment decisions associated to a residential Photovoltaic-Storage system. Results suggest that investors should use the proposed CLSM method in the economic valuation of multi-stage projects, since considering only a single flexibility could promote sub-optimal decisions. Moreover, in our case study, we show that it is optimal to break the investment down into two steps or more in 36% of future scenarios, on average.



Effect of Combining Carbon Policies and Price Controls in Cross-Border Trade of Energy on Renewable Generation Investments

Juan Carlos Muñoz, Sebastian Oliva H., and Enzo Sauma

Year: 2024
Volume: Volume 45
Number: Number 1
DOI: 10.5547/01956574.45.1.jmun
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Abstract:
In this paper, we investigate the combined effect of carbon policies and price controls in cross-border trade of electricity on power generation investments. It has been shown that price controls in cross-border trade of electricity may negatively affect renewable energy investments. However, the assessment of the impact of the simultaneous adoption of carbon policies and energy price controls has still not been addressed. Assessing this interaction is important to find out whether carbon policies can offset the negative impact of price controls on renewable energy investments or not. Results show that carbon policies can partially offset the negative impact of price controls, and that cap-and-trade programs are more effective to prevent this negative impact than carbon taxes. On the other hand, high levels of carbon taxes combined with price control regulation may increase renewable capacity investments, but without completely offsetting the negative effect of the price controls.





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