4.7 Article

Optimising feed-in tariff design through efficient risk allocation

Journal

SUSTAINABLE ENERGY GRIDS & NETWORKS
Volume 9, Issue -, Pages 59-74

Publisher

ELSEVIER SCIENCE BV
DOI: 10.1016/j.segan.2016.12.003

Keywords

Renewable energy; Feed-in tariff; Bi-level model; Renewable support schemes; Market price risk

Funding

  1. Programme for Research in Third-Level Institutions (PRTLI)
  2. European Regional Development Fund (ERDF)
  3. Science Foundation Ireland [09/SRC/E1780, 12/IA/1683]

Ask authors/readers for more resources

Many Feed-in Tariff designs exist. This paper provides a framework to determine the optimal design choice through an efficient allocation of market price risk. Feed-in Tariffs (FiTs) incentivise the deployment of renewable energy technologies by subsidising remuneration and transferring market price risk from investors, through policymakers, to a counterparty. This counterparty is often the electricity consumer. Using Stackelberg game theory, we contextualise the application of different FiT policy designs that efficiently divide market price risk between investors and consumers, conditional on risk preferences and market conditions. Explicit consideration of policymaker/consumer risk burden has not been incorporated in FiT analyses to date. We present a simulation-based modelling framework to carry this out. Through an Irish case study, we find that commonly employed flat-rate FiTs are only optimal when policymaker risk aversion is extremely low whilst constant premium policies are only optimal when investor risk aversion is extremely low. When both policymakers and investors are risk averse, an intermediate division of risk is optimal. We provide evidence to suggest that the contextual application of many FiT structures is suboptimal, assuming both investors and policymakers are at least moderately risk averse. Efficient risk allocation in FiT design choice will be of increasing policy importance as renewables deployment grows. (C) 2016 Elsevier Ltd. All rights reserved.

Authors

I am an author on this paper
Click your name to claim this paper and add it to your profile.

Reviews

Primary Rating

4.7
Not enough ratings

Secondary Ratings

Novelty
-
Significance
-
Scientific rigor
-
Rate this paper

Recommended

No Data Available
No Data Available