Policy Article

Recent Developments in European Support Systems for Renewable Power

Kiel Policy Briefs

The paper of the Kiel researchers Gunter Bahr, Daiju Narita and Wilfried Rickels deals with different instruments for the public support of renewable energy. One of the central goals of the EU's energy and climate policy is to increase the share of renewable electricity provision. Reducing cash-flow volatility for the investors is one determinant in achieving such goals and therefore ex-post efficiency. Tariff-based support systems provide such cash-flow security and hence allow for a lower renumeration per unit of renewable power than market-based systems do. Under market-based systems, future cast-flows are less certain, and investors require additional risk premiums. However, the fixed amount of certificates under a market-based system ensures overall support cost control in case of a relatively flat marginal cost function. For tariff-based systems this is not the case. One way of incorporating the benefits from lower capital costs for renewable energy in tariff-based systems, while at the same time keeping the quantity risk resulting from negative cost shocks down to a manageable level, would be to restrict the tariffs for a certain amount of capacity. This involves using so-called tenders, where tariffs are awarded to the developers who offer the lowest bids with regard to the fixed tariff.

Authors

Gunter Bahr
Daiju Narita