Optimising feed-in tariff design through efficient risk allocation

Files in This Item:
File Description SizeFormat 
REFITRisk_7Nov16.pdf637.23 kBAdobe PDFDownload
Title: Optimising feed-in tariff design through efficient risk allocation
Authors: Devine, Mel T.Farrell, NiallLee, William T.
Permanent link: http://hdl.handle.net/10197/10970
Date: Mar-2017
Online since: 2019-08-12T08:02:37Z
Abstract: 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.
Funding Details: Science Foundation Ireland
Type of material: Journal Article
Publisher: Elsevier BV
Journal: Sustainable Energy, Grids and Networks
Volume: 9
Start page: 59
End page: 74
Copyright (published version): 2016 Elsevier
Keywords: Renewable energyFeed-in tariffBi-level modelRenewable support schemesMarket price risk
DOI: 10.1016/j.segan.2016.12.003
Language: en
Status of Item: Peer reviewed
Appears in Collections:Electrical and Electronic Engineering Research Collection

Show full item record

Citations 50

Last Week
Last month
checked on Sep 20, 2019

Google ScholarTM



This item is available under the Attribution-NonCommercial-NoDerivs 3.0 Ireland. No item may be reproduced for commercial purposes. For other possible restrictions on use please refer to the publisher's URL where this is made available, or to notes contained in the item itself. Other terms may apply.