Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/279274 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10524
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper analyses an electricity market in which a monopolist that employs fossil-fuel base-load and peak-load technologies competes against a fringe of renewable energy (RE) generators. The optimal technology and electricity mix can be decentralised by levying technology-dependent capacity taxes/subsidies in addition to technology-/state-dependent emission taxes. Whenever base-load capacity is taxed (subsidised), peak-load capacity is subsidised (taxed). A decline in RE capacity costs and an increase in the share of consumers on real-time prices predominantly raises emission taxes and brings them closer to their Pigouvian level, albeit with some qualifications. Capacity taxes/subsidies disappear when all consumers are on real-time prices and RE is about to fully crowd out conventional base-load capacity.
Subjects: 
intermittent renewable energy
peak-load technology
base-load technology
emission tax
capacity tax/subsidy
JEL: 
Q42
Q48
Q58
H23
L13
Document Type: 
Working Paper
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