The social efficiency of electricity transition policies based on renewables: which ways of improvement?

Authors

Manuel Villavicencio, Dominique Finon

Abstract

Climate and energy policies use to be embedded in joint packages with seeming coherent goals on which the electricity sector is specifically targeted. However, the complexity of power systems is rarely fully apprehended while setting up such packages, particularly when technical externalities from variable renewable energies (VRE) become widespread and different sources of flexibility need to be considered. We use a detailed model of the French power system under a combination of RE goals and CO2 caps to seize their interplays and propose a methodology to rank the resulting equilibriums in terms of environmental effectiveness and economic efficiency. We show that: modest levels of VRE develop without subsidies regardless carbon cap level; technical externalities create trade-offs between VRE shares and environmental effectiveness; new flexibility (storage, demand response) may correct or exacerbate these externalities, impacting effectiveness, costs, and coherence of such packages, conducing to a sensitive target hierarchisation and fine-tuning challenge.