Different interpretations of the cost-effectiveness of renewable electricity support: Some analytical results

Abstract

The costs of support for electricity from renewable energy sources are an issue of concern for governments all over the world. The cost-effectiveness of such support is one of the main criteria to assess the success of policy instruments. However, significant confusion exists in the literature about which costs should be minimised. Some authors define the concept of cost-effectiveness as that which minimises the generation costs of renewable energy. Others define it as that which minimises the costs of support. In this paper, the optimisation problems corresponding to each of the approaches are formally stated, the corresponding optimality conditions are obtained, the optimal solutions of both approaches are compared and some mechanism of transfer of rents from consumers to producers, with good properties, are proposed.