Essays on the Economics of Renewable Energy Policy

This thesis includes four essays and deals with two distinct research topics in the context of increasing renewable energy generation shares in the European electricity system. The first topic concerns cross-border cooperation in renewable energy deployment in the European Union. Due to large regional variances in the generation costs of renewable energies across Europe, cross-border cooperation in achieving national renewable energy targets could potentially yield high cost savings. However, few member states intend to use cooperation mechanisms in achieving the 2020 targets. The essays in Chapters 2, 3 and 4 are motivated by this conflict between the potential economic efficiency gains and the observed reality of predominantly national approaches in renewable energy support. In Chapter 2, efficiency gains arising from European-wide cooperation in renewable energy support post-2020 are quantified using an electricity market optimization model. In addition, based on a qualitative analysis of the National Renewable Energy Action Plans, it is found that undesired redistribution effects resulting from cooperation are a major reason why member states of the European Union are reluctant to cooperate. Therefore, in Chapters 3 and 4, redistribution effects associated with cross-border cooperation are investigated in-depth, both theoretically and numerically. These analyses take into account that the different regional deployment of renewable energies resulting from cooperation may affect both renewable energy support payments and regional electricity markets (as long as the different countries are not perfectly physically interconnected). The theoretical analysis shows that effects of cooperation on consumers and total producers per country can only be clearly determined if no grid congestion between the countries exists. Furthermore, when interconnectors are congested, cooperation can, under certain conditions, even lead to a decreasing sectoral welfare in the electricity system of a country. However, in this case, increasing congestion rents ensure that the overall system-wide welfare always increases compared to a situation without cooperation. The numerical analysis shows that, in the European electricity system, the effect of cooperation on regional wholesale electricity markets is not dominant (in most countries). Therefore, in countries with comparatively high (low) generation costs for renewable energies, consumer rents increase (decrease) due to cooperation and producers yield lower (higher) profits. The second topic of this thesis concerns uncertainties in the context of increasing renewable energy shares. In Chapter 5, a multi-stage stochastic optimization model is developed, which is then applied to investigate the impact of uncertain renewable energy deployment paths on optimal investment decisions of conventional power plants. Main findings of this analysis include that plants with a medium capital/operating cost ratio have higher value under uncertainty surrounding renewable energy penetration levels