Conference Agenda

Public support systems and private investments into renewable energy are increasingly existing side-by-side and have both been emphasized in recent policy proposals. This paper assesses the interaction between the two approaches with respect to cream-skimming, i.e., the potential for low-cost projects to sign private contracts which raises the costs of publicly supported renewable energy. This paper uses a stylized, microeconomic model and a numerical simulation to assess this question. It finds that the incentive to cream-skimming exists when governments employ any form of resource differentiation in their renewable energy contracts. The numerical analysis shows that, at current price levels, the price increase is modest

The integration of electricity markets through increased interconnection capacity is a key driver of their economic performance. However, its impact on the environmental and market values of renewable energies, which are simultaneously being heavily deployed, must be measured. I empirically estimate this impact for the case of the connection between France and Spain, which was doubled in 2015. I find that this doubling has reduced the domestic marginal CO$_2$ abatement effect of Spanish wind power but has increased the reduction in emissions in France due to it. However, this increase does not fully offset the domestic decrease.

Regarding the price effect, I find that Spanish wind power has a downward impact on French electricity prices, and this effect is even more pronounced after the increase in interconnection capacity. Spanish wind power also reduces the wholesale price of Spanish electricity, once again validating the existence of the merit order effect. Back-of-the-envelope calculations reveal a net gain for Spanish consumers, as the price decrease outweighs the cost of wind energy subsidies. This holds true both before and after the expansion of the interconnection. Conversely, this expansion has allowed French consumers to benefit from both the price effect and the reduction in emissions free of charge. After the expansion, I estimate the annual amount of CO$_2$ avoided in France due to Spanish wind power to be 2 mega tonnes per year, each ton costing the Spanish consumer 128 euros. This study underscores the relationship between market integration, renewable energy deployment, and environmental outcomes. It highlights the need for systematic assessments of the environmental and economic benefits associated with the integration of European price zones, especially in the context of countries with varying degrees of polluting generation. The implications extend beyond the France-Spain case, offering insights into the ongoing transformation of European electricity markets.

Due to potentially extreme price volatility, the expansion of intermittent renewable generation has raised questions about the viability of wholesale electricity markets. To understand the role of commercially-provided electricity storage in attenuating the volatility of wholesale markets, we build a dynamic competitive equilibrium framework of investment in speculative storage and renewable generation capacity with stochastic demand and supply of electricity. We show that a recursive competitive equilibrium exists, is first best, and features well-behaved supply and demand relationships that are able to generate the rents required for investment in storage and generation capacity. Nonetheless, policymakers face a number of market design challenges. Our comparative static results show how, when there is low investment in storage capacity the market can feature many extreme price events, resulting in high levels of investment in generation capacity used as a form of insurance. In this case, storage and generation act as substitutes and crowd out each other's marginal returns. In markets with higher levels of storage capacity, storage and generation are complements. Our computed simulations suggest storage and generation are substitutes under current capital prices. However, the magnitude of tail prices generating rents to support investment does not `shake' and only `stirs' the price distribution, and prices that support capacity investment are well within current price caps. Imposing electricity price caps to keep prices at current `politically feasible levels' does not affect investment in storage capacity and only slightly reduces returns to generation capacity.

How useful are time of use rates and critical peak pricing schemes? To answer this question, this paper analyzes data from all seven competitive wholesale power markets in the US between 2000 and 2020. To maximize efficiency, retail rates need to align with marginal generation costs, which we proxy with wholesale prices. In practice, we find that feasible time of use and critical peak pricing schemes are poorly correlated with wholesale prices. Well-designed schemes can potentially save hundreds of millions of dollars in avoided deadweight loss per year over flat tariffs, but this is typically under 10\% of what might be regained through real-time pricing. Increasingly complex schemes can better match wholesale price variation only when the are (unrealistically) calibrated to wholesale prices ex post. When rates must be set ahead of time given imperfect information, complex schemes perform poorly and are often worse than flat rates. Rather than adding complexity, our results emphasize the importance of schemes that update more often to better incorporate new information.