A new RES support scheme: promoting an efficient operation through a capacity-based auction mechanism

Abstract

Climate change mitigation and cost reductions are driving the development of larger shares of renewable energy sources (RES) worldwide, particularly wind and solar PV. However, support schemes are still necessary to bridge the gap with respect conventional generation technologies. As RES penetration levels have increased and their impact on energy markets has become more noticeable, the appropriate design of support schemes has gained in importance within the policy agenda. Production-based mechanisms promote the maximization of the energy yield of RES capacity but can distort efficient market results. On the other hand, capacity-based support schemes avoid market distortions, but may lead to the installation of low-value RES capacity. This paper proposes a new auction-based RES support schemes that intends to combine the main pros of both types of support schemes. The key feature of this mechanism is that the support includes a capacity payment (€MW) and a bonus payment that depends on the operational profits earned by the RES generators from its market participation. The incentive properties of this scheme are illustrated with a simple case study and some future developments are discussed.