Impacts of the German Support for Renewable Energy on Electricity Prices, Emissions, and Firms

Abstract

Most models that are used to analyze support policies for renewable electricity neglect important market features like oligopolistic behavior, emission trading, and restricted cross-border transmission capacities. We use a quantitative electricity market model that accounts for these aspects and decompose the impact of the German Feed-in tariff (FIT) into two frequently counteracting effects: a substitution effect and a permit price effect. We find that the total effect of the policy increases the German consumer price slightly by three percent, while the producer price decreases by eight percent. In addition, emissions from electricity generation in Germany are reduced by eleven percent but are hardly altered on the European scale. Finally, it turns out that price-cost margins of almost all firms are increased by the FIT, while nonetheless, the profits of firms are significantly lowered unless the firms combine relatively carbon-intensive production with a weak connection to the German grid.

Modeling Strategic Electricity Storage: The Case of Pumped Hydro Storage in Germany

“…Calibrating the model with this value allows to replicate the reference demand and price levels very well. The value is also in line with other models (Borenstein and Bushnell 1999;Traber and Kemfert 2009). For reasons of simplicity and traceability,  is assumed to be time-invariant.…”

“…Lise et al (2008) find that scarce European cross-border transmission capacity and dry weather lead to additional market power exertion potentials. As for Germany, Traber and Kemfert (2009; use game-theoretic Cournot models to study the impact of German support for renewable electricity generation on prices, emissions, and profits as well as the impact of wind power on incentives for investments in thermal power plants. The model, which is described in Section 3, implements strategic Cournot pricing in a numerical, game-theoretic partial equilibrium framework and thus follows the strand of literature mentioned above.…”

“…Table 1 lists the conventional generation capacity available to different players. Data is derived from the database used by Traber and Kemfert (2009). It is adjusted with technology-specific plant availabilities in order to reflect regular maintenance and outages.…”

Combining Policies for Renewable Energy: Is the Whole Less Than the Sum of Its Parts?

“…29 However, the model also predicts that wholesale electricity prices and CO 2 permit prices are likely to decrease steadily as the TGC target increases beyond 25 percent. Traber and Kemfert (2009) explore the combined effects of the EU ETS and FiTs on consumer prices, recognizing the oligopolistic character of the German electricity market, as well as trade and production capacity constraints. They show clearly the two competing effects of FiTs on the price of electricity.…”

Renewable Energy Support in Germany: Surcharge Development and the Impact of a Decentralized Capacity Mechanism

“…Bode and Groscurth (2006) use a similar model of the German power sector and demonstrate the possibility of price reducing effects for consumers if they are at least partially exempted from the burden of the renewable energy supply (RES) support. Traber and Kemfert (2009) apply an oligopolistic European market model which endogenously calculates emission prices and the differential costs of RES support. Significant feedbacks of the emission market are found since the roll-out of renewable energy reduces the emission market prices, conventional production costs and overall prices.…”