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Distortions of National Policies to Renewable Energy Cooperation Mechanisms

Jelle Meus, Hanne Pittomvils, Stef Proost, and Erik Delarue

Year: 2022
Volume: Volume 43
Number: Number 4
DOI: 10.5547/01956574.43.4.jmeu
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Abstract:
The EU endeavors to stimulate the use of renewable energy cooperation mechanisms. These cooperation mechanisms can significantly reduce the policy cost for meeting renewable targets. Several authors, however, have raised concerns that such cooperation mechanisms can be subject to efficiency losses due to different national regulatory conditions, and due to an ill-advised selection of cross-border support instruments. A quantitative evaluation of these effects remains missing. To address this gap, we first introduce a unifying analytical framework to show how optimal cross-border renewable energy trade should be organized and how these mechanisms could be distorted. We then develop a partial equilibrium model, formulated as a large-scale mathematical program with equilibrium constraints, to assess the impact of (i) different national grid cost allocation regimes and (ii) different cross-border feed-in premium implementations. Our results indicate that EU-wide auctions for renewable electricity should (i) not be based on sliding feed-in premiums and should (ii) ideally be discriminatory if national regulatory conditions differ across Member States. We also consider country-level distributional effects and confirm that Member States can lose when engaging in renewable cooperation.



The Economics of Demand-side Flexibility in Distribution Grids

Athir Nouicer, Leonardo Meeus, and Erik Delarue

Year: 2023
Volume: Volume 44
Number: Number 1
DOI: 10.5547/01956574.44.1.anou
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Abstract:
To avoid unnecessary distribution network investments, distribution tariffs are expected to become more cost-reflective, and DSOs are expected to procure flexibility. This will provide an implicit and an explicit incentive to provide demand-side flexibility. In this paper, we develop a long-term bi-level equilibrium model. In the upper level, the DSO optimizes social welfare by deciding the level of investment in the distribution network and/or curtailing consumers. The regulated DSO also sets a network tariff to recover the network and flexibility costs. In the lower level, the consumers, active and passive, maximize their own welfare. We find that implicit and explicit incentives for demand-side flexibility are complementary regulatory tools, but there are limits. If network tariffs are too imperfect, the resulting consumption profiles can become too expensive to fix with curtailment. We also find that it is difficult to set an appropriate level of compensation because of the reaction by prosumers.





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