Policies to incentivize the adoption of renewable energy sources (RES) usually offer little flexibility to adapt to the varying benefits of those sources at different locations within the same jurisdiction. In this paper, we propose a general framework to evaluate the geographical misallocation of RES that is potentially caused by the uniform nature of feed-in-tariffs (FiT). After estimating the dispersion of the marginal benefits from solar production in Germany, we compute the social and private costs from the current configuration of residential solar photovoltaic (PV) plants relative to a reallocation scenario in which regions with a higher PV average productivity are given higher amounts of solar capacity, while keeping the system's total capacity fixed. We find that a 20% solar installation rate and with a conservative value for the social cost of carbon, the total value of solar PV would increase by about 5% relative to the current allocation. In addition, we estimate the size of the transmission capacity between the North and the South of Germany implied by the differences in marginal costs across those regions. Reallocating solar capacity with the possibility of exporting surpluses from the South to the North would yield gains that range from 14 to 22% depending on the rate of solar penetration. A benefit-cost analysis shows that additional transmission can be beneficial if there is sufficient RES capacity reallocated across regions.
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