EU-funded study has concluded that the best cost-effective way to achieve the 2030 target for sourcing energy from renewables is through technology neutral auctions. For less established renewable energy (RE) technologies, like tidal range, different option has been suggested as it may not develop fast enough to compete with other RE sources.
The study, conducted by Cambridge Economic Policy Associates (CEPA), suggests that after 2020 subsidies for some mature renewable technologies may no longer be necessary, partly due to lowered costs, but also as a result of possible reforms of the EU’s Emissions Trading System, according to the European Commission.
However, subsidies would still remain necessary after 2020 for less mature technologies such as offshore wind and marine renewables, it is stated in the study titled ‘Supporting investments into renewable electricity after 2020’.
Considering the primary policy objective is to meet future 2030 renewable energy sources of electricity (RES-e) targets, and 2050 decarbonization objectives at the least social cost, the study has found that in terms of economic efficiency, the best way to achieve the primary objective is to provide RES-e support via a single, primary, and technology neutral support mechanism.
This mechanism would allow direct competition among different types of non-viable RES-e technologies for support to provide the new generation capacity required to achieve the renewable energy targets.
CEPA has recognized that some emerging technologies may not receive much support under the proposed mechanism, stating that recommended policy option is flexible, and could allow the incorporation of additional policy objectives, assuming that the additional costs are acceptable, but without changing the nature of the primary support mechanism.
“Emerging technologies, those that would likely not succeed in a technology neutral auction, could be excluded from the primary support mechanism, and receive technology-specific support through an auxiliary mechanism. Based on our current modelling, we expect that many RES-e technologies, including offshore wind, would clear in the primary support mechanism, while it might take some time for other technologies, such as tidal range, to fall into this category,” it is stated in the study.
The study has used several different scenarios to model the development of European electricity markets between 2020 and 2050.
It estimates that around €25 billion a year will be needed for government investment in renewable sources of energy between 2020 and 2030.
As part of its Framework for climate and energy, the EU aims for 27% of energy consumed in 2030 in Europe to come from renewable sources. It has also set the goal of reducing greenhouse gas emissions until 2050 by 80-95%, compared to 1990 levels.
CEPA is an economic and financial policy consulting business, advising both private and public-sector clients on issues where economics, finance and public policy overlap.