Economics of renewable energy expansion and security of supply: A dynamic simulation of the German electricity market

Andreas Coester*, Marjan W. Hofkes, Elissaios Papyrakis

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

We explore the impact of renewable energy under free market conditions on the security of energy supply using data for the German electricity market. We design a fundamental electricity market model, where renewable energy capacity is not driven by expansion goals, but is dynamically modeled as an economically-driven investment option. Furthermore, we analyze the economics of five policy scenarios designed to secure both electricity supply and renewable energy expansion. Our analysis demonstrates that renewable energy expansion leads to conventional power plant shut-downs (due to economic losses) and, as a result, to energy shortages. We find that the application of a fixed feed-in tariff mechanism for renewable energy (i.e. a fixed payment for the provided energy) is an appropriate instrument to simultaneously achieve renewable energy expansion and uninterrupted energy supply. However, when internalizing the external costs of electricity generation, the scenario of a free market for renewable energy together with subsidies for conventional power plants becomes the most cost efficient option.

Original languageEnglish
Pages (from-to)1268-1284
Number of pages17
JournalApplied Energy
Volume231
Early online date2 Oct 2018
DOIs
Publication statusPublished - 1 Dec 2018

Keywords

  • Conventional energy
  • Electricity market design
  • Energy security
  • Feed-in tariffs
  • Renewable energy

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