The Structural Impact of Renewable Portfolio Standards and Feed-in-Tariffs on Electricity Markets

Abstract

Renewable energy sources (RES) capacity has grown globally at a rapid rate benefiting from multiple support schemes such as renewable portfolio standards (RPS), feed-in-tariffs (FIT), and market premia (MP). While research concentrated on comparing the effectiveness of these policy instruments in driving RES investment, the focus is increasingly shifting towards assessments of the structural impact of these schemes on electricity markets. RES support schemes are continuously being assessed on how they help achieve the three main objectives of electricity policy, i.e., the affordability, reliability, and sustainability of electricity supply. In this work, we quantitatively compare RPS, FIT and MP schemes in these three dimensions by assessing their future impact on electricity prices, on generation portfolios and security of supply as well as on carbon emissions. We simulate the impact of all three support schemes using a long-term capacity expansion model with an hourly granularity for a time horizon of 60 years. We find that all support schemes increase RES penetration and thereby help reduce CO2 emissions. However, MP and FIT schemes can achieve these effects at lower cost, while RPS schemes deliver more robust results. Our findings provide insights to regulators, utilities and investors on the consequences of current regulation and possible alternatives.

Keywords: Renewable portfolio standards, Feed-in-tariffs, Renewable energy, Power generation, Renewable energy support schemes, Capacity expansion

JEL Classification: Q4, Q2, L9, L5