Tradable Renewable Quota vs. Feed-In Tariff vs. Feed-In Premium Under Uncertainty

37 Pages Posted: 2 Dec 2014

See all articles by Robert Marschinski

Robert Marschinski

Potsdam Institute for Climate Impact Research (PIK)

Philippe Quirion

CIRED, International Research Center on Environment & Development, France; CNRS/EHESS

Date Written: November 28, 2014

Abstract

We study the performance under uncertainty of three renewable energy policy instruments: Tradable Renewable Quota (TRQ), Feed-In-Tariff (FIT), and Feed-In-Premium (FIP). We develop a stylized model of the electricity market, where renewables are characterized by a positive learning externality, which the regulator aims to internalize. Assuming shocks on the fossil-based electricity supply, renewables supply, or on total electricity demand, we analytically derive the conditions determining the instruments’ relative welfare ranking. Although we generally confirm the key role of the slopes of marginal benefits and costs associated with the policy, the specific ranking depends on which type of uncertainty is considered, and whether shocks are permanent or transitory. However, a high learning rate generally favours the FIT, while TRQ is mostly dominated by the other two instruments. These results are confirmed in a numerical application to the US electricity market, in which the FIP emerges as the most and TRQ as the least robust overall choice.

Keywords: Feed-in Premium, Feed-in Tariff, Renewable Energy Policy, Renewable Portfolio Standard, Tradable Renewable Quota, Uncertainty

JEL Classification: Q4, Q48

Suggested Citation

Marschinski, Robert and Quirion, Philippe, Tradable Renewable Quota vs. Feed-In Tariff vs. Feed-In Premium Under Uncertainty (November 28, 2014). FEEM Working Paper No. 099.2014, Available at SSRN: https://ssrn.com/abstract=2532391 or http://dx.doi.org/10.2139/ssrn.2532391

Robert Marschinski

Potsdam Institute for Climate Impact Research (PIK) ( email )

Telegraphenberg
Potsdam, Brandenburg 14412
Germany

Philippe Quirion (Contact Author)

CIRED, International Research Center on Environment & Development, France ( email )

Campus du Jardin Tropical
45 bis avenue de la Belle Gabrielle
F94736 Nogent sur Marne Cedex
France
+33 1 43 94 73 95 (Phone)
+33 1 43 94 73 70 (Fax)

CNRS/EHESS

54, boulevard Raspail
Paris, 75006
France

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