The development of “sustainable infrastructure” is both a key element of any green growth strategy, but also a major issue for cost allocation and consumer protection. Wholesale prices for electricity have been sinking steadily since the introduction of ambitious policy measures to reduce greenhouse gas emissions and integrate renewable energy services. However, consumer did not see an equivalent reduction in retail prices, because increasing surcharges and taxes to support renewables and pay for network investment are added to their bills. The current political controversy regarding a reform of the EEG (renewable energy law) is ample evidence that the policies in place are controversial.
This task will focus on the efficiency and equity of network investment and renewable support with particular regard to consumer welfare and the financing of direct support mechanisms and/or taxes. While some literature analyzed the role of competitive processes in network industries to date, no comprehensive applied study quantifying the potential welfare benefits from reducing market power potential via market integration in the EU exists. Moreover, the allocation of the Energiewende’s costs to consumers in different jurisdictions is important, yet still not fully understood. Due to the characteristics of power networks, allocating the costs of the investments to the beneficiaries is not straightforward in practice, thus hindering efficient expansion of the network and integration of renewables. Furthermore, network investment and renewable feed-in, which is not necessarily market-driven due to taxes and regulation, may lead to a substantial re-allocation of welfare and rents across stakeholder groups and national boundaries. This task aims to provide counterfactual simulations to inform policy makers and regulators on how make the transformation of the European power sector more equitable and efficient.