Revisiting support policies for RES-E adulthood: Towards market compatible schemes

• Published in: Energy policy 2017-05, Vol.104, p.474-483
• Main Authors: Huntington, Samuel C., Rodilla, Pablo, Herrero, Ignacio, Batlle, Carlos
• Format: Article
• Language: English
• Subjects: Deployment; Economic integration; Electricity; Electricity market design; Energy policy; Energy sources; Integration; Market integration; Market penetration; Marketing; Markets; Negative prices; Penetration; Policies; Property; Renewable energy; Renewable energy sources; RES-E support schemes; Subsidies; Support schemes; Technology
• ISSN: 0301-4215; 1873-6777
• DOI: 10.1016/j.enpol.2017.01.006

The past two decades of growth in renewable energy sources of electricity (RES-E) have been largely driven by out-of-market support policies. These schemes were designed to drive deployment on the basis of specific subsidies sustained in time to allow for the larger costs as well as to limit investor risk. While these policies have proven to be effective, the way they have been designed to date has led to costly market distortions that are becoming more difficult to ignore as penetrations reach unpreceded levels. In the context of this growing concern, we provide a critical analysis of the design elements of RES-E support schemes, focusing on how they affect this trade-off between promoting and efficiently integrating RES-E. The emphasis is on the structure of the incentive payment, which in the end turns to be the cornerstone for an efficient integration. We conclude that, while needed, a well-designed and further developed capacity-based support mechanism complemented with ex-post compensations defined for reference benchmark plants, such as the mechanism currently implemented in Spain, is an alternative with good properties if the major goal is truly market integration. The approach is robust to future developments in technology cost, performance and market penetration of RES-E. •Market distortions due to RES support mechanisms are becoming difficult to ignore.•This paper provides a critical analysis of the design elements of RES support schemes.•The emphasis is on the structure of the incentive, key for an efficient integration.•We argue in favor of a further developed capacity-based support mechanism.•The incentive should be combined with the design of a set of reference plants.