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Incentives for the Long-Term Integration of Renewable Energies: A Plea for a Market Value Model

DIW Weekly Report 46/47 / 2017, S. 467-476

Karsten Neuhoff, Nils May, Jörn Richstein

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Due to increasing shares of renewable energies in electricity production, the cost-effective system integration of these installations is becoming more and more important. Technologies and locations are viewed as system-friendly when they are more cost-efficient and easier to integrate because they, unlike other installations, produce at times when electricity is more valuable. This report shows that project developers of renewable energies in Germany have had limited incentivesto invest in system-friendly installations. A market value model is derived based on five criteria for the further development of support instruments. This model creates appropriate incentives for investments in system-friendly installation while simultaneously avoiding additional financial risks for project developers. With such an approach based on a market value factor, the support costs for renewable energies as well as for levies in the overall electricity system and for the energy transition in general can be minimized over the long-term.

Jörn C. Richstein

Senior Research Associate / Thematic Lead Electricity Markets in the Climate Policy Department

Karsten Neuhoff

Head of Department in the Climate Policy Department

JEL-Classification: L94;L98;Q48;D47
Keywords: Renewable energy, feed-in premium, system-friendly wind power, integration of renewable energy
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