Policies to incentivize the adoption of renewable energy sources (RES) usually offer little flexibility to adapt to heterogeneous benefits across locations. We evaluate the geographical misallocation of RES associated with the uniform nature of subsidies. We estimate the dispersion of marginal benefits from solar production in Germany and compute the social and private benefits from optimal reallocations of residential solar installations keeping total capacity fixed. We find that total value of solar would increase by 6.4% relative to the current allocation using conservative values for solar penetration. Reallocating all solar and taking into account transmission would yield considerably larger gains.
Renewable energy sources; electricity markets; feed-in-tariffs; ancillary services; misallocation.;
- H23: Externalities • Redistributive Effects • Environmental Taxes and Subsidies
- Q42: Alternative Energy Sources
- Q48: Government Policy
- Q51: Valuation of Environmental Effects
TSE Working Paper, n. 20-1103, May 2020, revised September 2020