Effects of Transmission Congestion on Different Incentive Policies for Renewable Energy

Abstract

This paper analyzes the effects of relieving power transmission congestion to encourage the development of renewable energy (RE) under different regulatory policies. Based on Cournot competition, our model incorporates uncertainty and the variability of both renewable resources and demand. We observe that transmission congestion specially affects the development of RE under subsidy policies (feed-in tariff and premium payment). By investing in FACTS and/or other devices that increase transmission capacity, all policies have positive incentives from the social perspective. From a private perspective, the tax policy does not provide sufficient incentives. We also show that higher levels of transmission investment are obtained from a social perspective than from a private perspective. Finally, we found that the existence of multiple equilibria affects the resulting social welfare and market outcomes. In particular, we found that CO2 emissions and social welfare may significantly vary from equilibrium to equilibrium.