Gregor Berz, Manfred J. Holler: The Good Fairy and the Bad Raisin Pickers: The Dilemma of Renewable Energy

This paper discusses the possibility of an efficient arrangement of electricity production from renewable sources. In order to support a stable supply of electricity, a combination with complementary, controllable energy sources – storage or traditional power stations – is necessary to overcome the storage problem, i.e., the dependence on the volatile and uncontrollable availability of wind and sun as (non-storable) primary energy.

A simple model of a natural monopoly is used to demonstrate that such a combination is not sustainable if market entry is free and electricity is traded on the spot market. We also discuss alternative public policy instruments (taxes, subsidies, and entry regulations) which may help to overcome this problem and ensure an efficient provision of electricity.

Part of the Munich Social Science Review, New Series, Volume 8 (2024)

The entire volume can be purchased online at this link.