Do support systems for RES-E reduce EU-ETS-driven electricity prices?

Support systems for ELECTRICITY FROM RENEWABLE ENERGY SOURCES (RES-E) can reduce electricity prices which have also been influenced by a CO2 EMISSION TRADING SCHEME (ETS): Additional RES-E substitutes electricity from fossil fuels, and thus CO2-emissions are reduced. The demand for emission reductions is lowered, as a result the CO2-price is also reduced. Consequently the wholesale price for electricity decreases. However, most RES-E support systems are financed via the electricity market, which increases the retail electricity price. An assessment for Germany shows that retail electricity prices in the first trading period of the EU-ETS 2005-2007 are lowered by 2.6 Euro/MWh due to additional RES-E. Considering the complete EU, the effect is substantially higher. This paper describes the effect and the influence of different policy designs. It develops an approach for assessing the effect and applies it for the case of Germany and roughly estimates the effect for the EU. (c) 2005 Elsevier Ltd. All rights reserved.