Gregor Berz and Manfred J. Holler: The Dilemma of Renewable Energy

Gregor Berz  &  Manfred J. Holler: The Dilemma of Renewable Energy

This paper discusses the possibility of an efficient arrangement of production of electricity by means of renewable energy, i.e., wind and sunshine. In order to support a stable provision of electricity, a combination with traditional power stations is necessary to overcome the storage problem. 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. Alternative public policy instruments are discussed (taxes, subsidies, and entry regulations) which might be applied to overcome this problem and guarantee an efficient provision of electricity.