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System Costs of Variable Renewable Energy in the European Union. Bruges European Economic Policy (BEEP) Briefings 37/2015

ROY, Thibault (2015) System Costs of Variable Renewable Energy in the European Union. Bruges European Economic Policy (BEEP) Briefings 37/2015. [Policy Paper]

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    To shift to a low-carbon economy, the EU has been encouraging the deployment of variable renewable energy sources (VRE). However, VRE lack of competitiveness and their technical specificities have substantially raised the cost of the transition. Economic evaluations show that VRE life-cycle costs of electricity generation are still today higher than those of conventional thermal power plants. Member States have consequently adopted dedicated policies to support them. In addition, Ueckerdt et al. (2013) show that when integrated to the power system, VRE induce supplementary not-accounted-for costs. This paper first exposes the rationale of EU renewables goals, the EU targets and current deployment. It then explains why the LCOE metric is not appropriate to compute VRE costs by describing integration costs, their magnitude and their implications. Finally, it analyses the consequences for the power system and policy options. The paper shows that the EU has greatly underestimated VRE direct and indirect costs and that policymakers have failed to take into account the burden caused by renewable energy and the return of State support policies. Indeed, induced market distortions have been shattering the whole power system and have undermined competition in the Internal Energy Market. EU policymakers can nonetheless take full account of this negative trend and reverse it by relying on competition rules, setting-up a framework to collect robust EU-wide data, redesigning the architecture of the electricity system and relying on EU regulators.

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    Item Type: Policy Paper
    Uncontrolled Keywords: Variable renewable energy, Integration costs, Distortion costs, EU electricity system, System costs
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > energy policy (Including international arena)
    EU policies and themes > Policies & related activities > environmental policy (including international arena)
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > College of Europe (Brugge) > Bruges European Economic Policy Briefings (BEEP)
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 22 Mar 2016 09:49
    Number of Pages: 38
    Last Modified: 23 Mar 2016 09:14

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