Renewable Energy

Energy Economics 40 (2013) S12–S23

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Energy Economics journal homepage: www.elsevier.com/locate/eneco

On the economics of renewable energy sources
Ottmar Edenhofer a,b,c,⁎, Lion Hirth a,d, Brigitte Knopf a, Michael Pahle a, Steffen Schlömer a, Eva Schmid a, Falko Ueckerdt a a Potsdam Institute for Climate Impact Research, P.O. Box 601203, 14412 Potsdam, Germany Economics of Climate Change, Technische Universität Berlin, Straße des 17, Juni 145, 10623 Berlin, Germany Mercator Research Institute on Global Commons and Climate Change, Torgauer Straße 12-15, 10829 Berlin, Germany d Vattenfall GmbH, Chausseestraße 23, 10961 Berlin, Germany b c

a r t i c l e

i n f o

a b s t r a c t
With the global expansion of renewable energy (RE) technologies, the provision of optimal RE policy packages becomes an important task. We review pivotal aspects regarding the economics of renewables that are relevant to the design of an optimal RE policy, many of which are to date unresolved. We do so from three interrelated perspectives that a meaningful public policy framework for inquiry must take into account. First, we explore different social objectives justifying the deployment of RE technologies and review model-based estimates of the economic potential of RE technologies, i.e. their socially optimal deployment level. Second, we address pivotal market failures that arise in the course of implementing the economic potential of RE sources in decentralized markets. Third, we discuss multiple policy instruments curing these market failures. Our framework reveals the requirements for an assessment of the relevant options for real-world decision makers in the field of RE policies. This review makes it clear that there are remaining white areas on the knowledge map concerning consistent and socially optimal RE policies. © 2013 Elsevier B.V. All rights reserved.

Available online 21 September 2013 JEL classification: Q21 Q28 Q42

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