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The Economics of Energy Market Transformation Programs

Richard Duke and Daniel M. Kammen

Year: 1999
Volume: Volume20
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No4-2
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This paper evaluates three energy-sector market transformation programs: the U.S. Environmental Protection Agency's Green Lights program to promote on-grid efficient lighting; the World Bank Group's new Photovoltaic Market Transformation Initiative; and the federal grain ethanol subsidy. We develop a benefit-cost model that uses experience curves to estimate unit cost reductions as a function of cumulative production. Accounting for dynamic feedback between the demand response and price reductions from production experience raises the benefit-cost ratio (BCR) of the first two programs substantially. The BCR of the ethanol program, however, is approximately zero, illustrating a technology for which subsidization was not justified. Our results support a broader role for market transformation programs to commercialize new environmentally attractive technologies, but the ethanol experience suggests moderately funding a broad portfolio composed of technologies that meet strict selection criteria.

The Potential Market for Photovoltaics and Other Distributed Resources in Rural Electric Cooperatives

Thomas E. Hoff and Matthew Cheney

Year: 2000
Volume: Volume21
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol21-No3-5
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In the United States, rural electric cooperatives have an aging distribution system (1 million miles of distribution wires were originally installed over 40 years ago) and a load density that is about one-tenth of the load density at other utilities. The result is that there may soon be a large market opportunity for photovoltaics (PV) and other distributed resources. This paper calculates the cost of replacing portions of the distribution system as it wears out with hybridPV systems, compares it to the cost of replacing the system with equivalent distribution system equipment, and selects the alternative with the lowest cost. Results suggest that there is a potential market of 500 MW to 950 MW of PV at a price of $3,000/kW (a 50 percent reduction over PV prices in 2000) and a corresponding fossil-based generation market size of 280 MW to 555 MW at a price of $1,000/kW The hybrid-PV systems could replace 7 percent to 16 percent of the miles of distribution system and could save co-ops $1.0 billion to $2.5 billion (present value).

Demand Subsidies Versus R&D: Comparing the Uncertain Impacts of Policy on a Pre-commercial Low-carbon Energy Technology

Gregory F. Nemet and Erin Baker

Year: 2009
Volume: Volume 30
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No4-2
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We combine an expert elicitation and a bottom-up manufacturing cost model to compare the effects of R&D and demand subsidies. We model their effects on the future costs of a low-carbon energy technology that is not currently commercially available, purely organic photovoltaics (PV). We find that: (1) successful R&D enables PV to achieve a cost target of 4c/kWh, (2) the cost of PV does not reach the target when only subsidies, and not R&D, are implemented, and (3) production-related effects on technological advance�learning-by-doing and economies of scale�are not as critical to the long-term potential for cost reduction in organic PV than is the investment in and success of R&D. These results are insensitive to two levels of policy intensity, the level of a carbon price, the availability of storage technology, and uncertainty in the main parameters used in the model. However, a case can still be made for subsidies: comparisons of stochastic dominance show that subsidies provide a hedge against failure in the R&D program.

Grid parity of solar energy: imminent fact or future's fiction

Spiros Papaefthimiou, Manolis Souliotis, and Kostas Andriosopoulos

Year: 2016
Volume: Volume 37
Number: Bollino-Madlener Special Issue
DOI: 10.5547/01956574.37.SI2.spap
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One of the major questions related to renewable energy systems is whether we are approaching solar grid parity or not. Solar based power generation will play an important role in future sustainable energy mixes due to its high reliability, yield predictability and capacity for electricity production during peak demand when the electricity price is usually high. But nowadays the economic viability of these technologies depends on the subsidies usually granted, mainly by public authorities, and in a minor way by electricity producers. The article evaluates the potential of solar energy based technologies for viable electricity generation, focusing on Photovoltaics (PV) and Concentrated Solar Power (CSP) systems. The evaluation was not only focused on EU but also covered global markets, assessing the necessary barriers and thresholds preventing or boosting these technologies to reach grid parity. The observed rapid growth in deployment of the studied technologies (especially PV) in recent years is largely policy-driven and whether this trend will be sustainable depends on whether governments will continue to expand financial incentives and policy mandates, as well as address regulatory and market barriers. Keywords: Solar energy, Grid parity, Photovoltaics, Concentrated Solar Power systems.

On the effectiveness of feed-in tariffs in the development of solar photovoltaics

Elbert Dijkgraaf, Tom P. van Dorp, and Emiel Maasland

Year: 2018
Volume: Volume 39
Number: Number 1
DOI: 10.5547/01956574.39.1.edij
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Growing concern about climate change and rising prices of fossil fuels has prompted governments to stimulate the development of renewables. The most common instrument is a feed-in tariff (FIT). This paper empirically tests whether or not FIT policies have been effective in encouraging the development of photovoltaic solar (PV), explicitly taking into account the structure and consistency of FITs. Panel data estimations are employed for 30 OECD member countries in the period 1990-2011. We fnd a positive effect of the presence of a FIT on the development of a country's added yearly capacity of PV per capita. This is in line with the results found in the existing literature. However, our study shows that the literature underestimates the potential impact of FITs, as the effect of a well-designed FIT is much larger than the average effect of the currently applied FITs. Not only the height of the tariff is important, but also the duration of the contract and the absence/presence of a cap have an impact. We also show that consistency greatly affects the effectiveness of FITs. Consistency is especially important when the tariff of a FIT is low. The total effect of a FIT can be seven times larger if it is well designed. Our results are robust for differences between countries with respect to the availability of other policy instruments, the use of nuclear or hydro power and the level of CO2 emissions.

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