Elsevier

Utilities Policy

Volume 71, August 2021, 101243
Utilities Policy

Achieving long-term renewable energy goals: Do intermediate targets matter?

https://doi.org/10.1016/j.jup.2021.101243Get rights and content
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Highlights

  • We experimentally study the implementation of green generation goals.

  • Subjects acting as regulators decide on subsidies, trading-off blackout risk and price.

  • Roadmaps do not affect the probability of reaching long-term environmental targets.

  • Different roadmaps lead to different regulatory decisions and thus the trajectories.

  • Roadmaps hence impact blackout risk, generation cost and subsidies.

Abstract

Policymakers in various countries often determine roadmaps, a sequence of intermediate goals to achieve their long-term renewable energy objectives. We study the influence of roadmaps on regulatory decisions and market functioning using laboratory experiments. We simulate a stylized electricity market with two generation technologies (a renewable “green” technology and a thermal source) whose share of renewable generation must increase over a 40-year period. Investments in thermal capacity are driven by subsidies and profitability, while green capacity investments solely depend on subsidies. Participants act as regulators and decide each year how many MWs of green and thermal capacity to subsidize while managing the trade-off between blackout risk, cost for customers and subsidies. We manipulate the presence and the time granularity of roadmaps.

We find that roadmaps impact regulatory decisions and the resulting subsidies, but not the likelihood of achieving the long-term goals, illustrating that a given target can be reached by different trajectories with different costs. Therefore, policymakers should carefully consider the choice of intermediate objectives that impact paths toward greener energy in terms of trade-offs between governmental subsidies and market forces.

Keywords

Electricity markets
Long-term targets
Roadmap
Experiment

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