Who benefits from cooperation? A numerical analysis of redistribution effects resulting from cooperation in European RES-E support

This paper numerically analyzes redistribution effects resulting from cooperation among European countries in achieving the 2020 targets for electricity generation from renewable energy sources (RES-E). The quantification of redistribution effects builds on the theoretical analysis by Unteutsch (2014), who shows that cooperation in RES-E support increases overall welfare but is not beneficial for all groups. In this paper, we use a dynamic investment and dispatch optimization model of the European electricity system to investigate which groups potentially benefit from cooperation and which groups would be worse off compared to a situation in which national RES-E targets are reached solely by domestic RES-E production. In the analysis, cooperation in RES-E support is implemented as a European-wide green certificate trading scheme. Main findings of the analysis include that in the European electricity system, effects of the change in the certificate price in most countries would overcompensate for the effects of the change in the wholesale electricity price. Thus, in most countries with comparatively high (low) generation costs for renewable energies, consumer rents increase (decrease) due to cooperation and producers yield lower (higher) profits. In addition, it is found that the magnitude of redistribution effects between the individual groups is quite large: In some countries, the change in consumer rents or producer profits resulting from cooperation is nearly twice as high as the overall welfare effect of cooperation in the whole European electricity system. Moreover, we find that the sign, but not always the magnitude, of redistribution effects is quite robust to different developments of interconnector extensions, the CO2 price and RES-E investment costs.