Economics of renewable energy expansion and security of supply: A dynamic simulation of the German electricity market

Coester, Andreas, Hofkes, Marjan W. and Papyrakis, Elissaios (2018) Economics of renewable energy expansion and security of supply: A dynamic simulation of the German electricity market. Applied Energy, 231. pp. 1268-1284. ISSN 0306-2619

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Abstract

We explore the impact of renewable energy under free market conditions on the security of energy supply using data for the German electricity market. We design a fundamental electricity market model, where renewable energy capacity is not driven by expansion goals, but is dynamically modeled as an economically-driven investment option. Furthermore, we analyze the economics of five policy scenarios designed to secure both electricity supply and renewable energy expansion. Our analysis demonstrates that renewable energy expansion leads to conventional power plant shut-downs (due to economic losses) and, as a result, to energy shortages. We find that the application of a fixed feed-in tariff mechanism for renewable energy (i.e. a fixed payment for the provided energy) is an appropriate instrument to simultaneously achieve renewable energy expansion and uninterrupted energy supply. However, when internalizing the external costs of electricity generation, the scenario of a free market for renewable energy together with subsidies for conventional power plants becomes the most cost efficient option.

Item Type: Article
Uncontrolled Keywords: conventional energy,electricity market design,energy security,feed-in tariffs,renewable energy
Faculty \ School: Faculty of Social Sciences > School of International Development
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Depositing User: LivePure Connector
Date Deposited: 03 Oct 2018 09:30
Last Modified: 01 Sep 2020 23:50
URI: https://ueaeprints.uea.ac.uk/id/eprint/68412
DOI: 10.1016/j.apenergy.2018.09.143

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