On international renewable cooperation mechanisms: The impact of national RES-E support schemes

The deployment of renewable cooperation mechanisms within the European Union (via statistical transfers, joint support schemes and joint projects) is expected to increase in the near future. Such cooperation mechanisms can significantly reduce the compliance cost for meeting renewable energy targets. Nevertheless, as it is known that ill-designed national support instruments distort renewable investment and production decisions, it can also be expected that these impact the performance of cooperation mechanisms. In this paper, we develop a bi-level two-country competitive equilibrium model that analyzes the impact of national RES-E support instruments on the performance of renewable cooperation mechanisms. Furthermore, we assess the efficiency of two international cooperation mechanisms (statistical transfers and joint support schemes) and compare it to the situation without renewable cooperation. Based on an analytical derivation and a numerical example, we first confirm that fixed feed-in premiums are the globally most efficient instrument, given production-based quotas (in MWh). Other national instruments (feed-in tariffs and capacity-based subsidies) can distort renewable investment decisions, and are sub-optimal. Second, the employment of statistical transfers always outperforms the no-renewable cooperation case, independent of the national support instruments. Third, statistical transfers are preferred over joint support schemes when employing sub-optimal national policy instruments. In fact, it even is possible that sub-optimal joint support schemes (i.e. not based on the fixed feed-in premium) perform worse than no renewable cooperation at all. Finally, we also consider the country-level distributional effects and conclude that country-level incentives for renewable cooperation may not align with the global optimum, i.e. national policy makers might be incentivized to constrain their cooperation levels.