Subsidies to renewable electricity should reduce costs and make new technologies competitive in the market. Now many argue that wind and PV generation is mature. Does that mean that it is time to phase out wind and solar subsidies?
An important aim of renewables subsidies in particular, and climate policies in general, is to make low-carbon electricity generation competitive in the market. Renewables subsidies should bring costs down as volumes increase, while the gradual tightening of the emission cap should cater for an increasing price on CO2 emissions, thereby increasing the cost of fossil fuels and the electricity price.
Now it is argued that wind and solar power, in particular, are mature. CO2 and power prices are however not at the expected level yet due to excess power capacity and a substantial surplus of CO2 allowances. The question is: Should renewable subsidies be phased out in order to “save” the CO2 market, or should subsidies remain until the CO2 market provides adequate CO2 prices?
We argue that subsidies should be phased out when a technology is competitive with existing, conventional technologies. That investments are not profitable is a not a valid economic argument for continued support, as the reason for non-profitability is excess capacity in the market.
The analysis is carried out in a project for Energy Norway.
Read more here:
T-CG Insight 2017-01 >> Time to phase out subsidies to mature renewable electricity?
THEMA Memo 2016-07 >> Time to phase out support to mature renewables? Approaches and options