Impact of market design on cost-effectiveness of renewable portfolio standards

Impact of market design on cost-effectiveness of renewable portfolio standards

Shayegh S., Sanchez D.L., (2020), Impact of market design on cost-effectiveness of renewable portfolio standards, Renewable and Sustainable Energy Reviews, Volume 136, February 2021, 110397, DOI:10.1016/j.rser.2020.110397, webpage

Abstract

A renewable portfolio standard (RPS) is a policy instrument designed to increase production of clean energy technologies by mandating a minimum market share for these technologies. However, the cost-effectiveness of RPS in achieving its goal depends on the market structure, which impacts the level of competition in the market. Here, we analyze the impact of market structure on RPS effectiveness by calculating the amount of subsidies needed to achieve RPS mandates. We identify a critical market share of renewable energy that can be achieved by providing an equal amount of subsidy in both regulated and deregulated markets. We find wide variation in the preferred market structure for state-level RPS policies across the United States. Overall, deregulated markets minimize subsidy requirements for clean energy technologies with lower penetration rates. In contrast, regulated markets minimize subsidy requirements for higher market share mandates. The critical market share can help policymakers design more cost-effective RPS mandates in both regulated and deregulated markets.

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