Who bears the risk? Incentives for renewable electricity under strategic interaction between regulator and investors
2023
Alcorta Iglesias, Peio | Espinosa Alejos, María Paz | Pizarro Irizar, María Cristina
Energy policies for promoting investment in renewable energy sources have become crucial for deploying green energy technologies worldwide. Conventional incentive systems assign risk to either policymakers or investors. In this paper, we combine option theory and game theory to obtain optimal parameters for incentive schemes with different degrees of risk-sharing. We present an empirical application to the Spanish electricity market for 2013, when the Feed-in Tariff scheme was still in force, and for 2019, when Feed-in Tariffs had been completely phased out but before the demand shock caused by COVID-19, the restructuring of market price limits, and the recent energy price crisis in Europe. Our results indicate that there are more flexible systems based on Fixed Tariffs and Premiums that can outperform conventional designs, since they may enable the same investment level to be reached at a lower regulatory cost. In addition, these hybrid schemes permit risk-sharing between both parties. Our results may also be useful for designing incentives awarded through competitive auctions. © 2023 The Authors
Show more [+] Less [-]Financial support from MINECO, Spain ( PID2019-108718GB-I00 and PID2022-139458NB-I00 ), MCIN, Spain (María de Maeztu Excellence Unit 2023–2027, Ref. CEX2021-001201-M ) and the Basque Government, Spain ( IT1461-22 ) is gratefully acknowledged. Peio Alcorta acknowledges support from the Basque Government, Spain under predoctoral grant ( PRE_2022_2_0154 ). We also thank participants at the XVI Conference of the Spanish Association for Energy Economics for their comments. We also thank the editor and two reviewers for very insightful comments.
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