Renewable energy is not the cheapest technique for the energy production. Nevertheless, it's obvious that renewable energy is an object of concern because of the substitutability of conventional fossil fuels and of the environmental friendliness as it...
Renewable energy is not the cheapest technique for the energy production. Nevertheless, it's obvious that renewable energy is an object of concern because of the substitutability of conventional fossil fuels and of the environmental friendliness as its the reduction of greenhouse gas as well as of the supply stability for the depletion of fossil fuels. However, as we're at the point of time when the produced energy is being traded in the power trade exchange, the renewable energy development should not be the only one regarded differently from other conventional fossil fuel development. Provided that if renewable energy fails during the process of a market entrance, it's a basis of the government intervention. Here we try to approach with following three questions to elaborate further.
First, is the government intervention and the regulation really needed for renewable energy under competitive market?
Second, is renewable energy a substitute goods or a complementary goods? And third, which is more effective for the activation of renewable energy? The suggested subsidy policy or the taxation policy?
To answer the first question, the market barriers and its counter-measure were researched through the questionnaires. As a result, renewable energy has its market failure factor and the policy options such as setting up a reference fixed price, the differential support of the reference fixed price and the market price, subsidy of the connection cost for the power transmission line, environment information disclosure, green e-certification, green pricing schemes, net metering, renewable portfolio standard, mandatory purchasing system, and imposition of environmental tax have been taken up a subject for discussion. And with the introduction of those policy options, it was expected that possible renewable energy diffusion target is 3-4% of total energy consumption except for the large hydro power until year 2010 and 1-2% of gross power generation. This objective is somewhat less than what government has set up earlier as it was 5% till 2010.
To resolve second question, as a result of estimating the fuel demand function using the trans-log cost function, it is confirmed that there is a substitution relationship between conventional fossil fuel power & nuclear power. And renewable energy was analyzed that it has a complementary relationship with conventional steam generation such as petroleum, coal, and LNG, as well as with the nuclear power.
To work out last third question, above suggested various policy variables were divided into subsidy policy and taxation policy and the spill-over effect on national economy was analyzed with a computable general equilibrium (CGE) model. As a result, because subsidy policy makes a substantial increase in renewable energy demand which brings down the energy cost, it was analyzed that the subsidy supply expands the supply of renewable energy, and at the same time, it contributes positive effects such as stronger industrial competitiveness and stabilizing prices (of commodities). On the other hand, the policy that induces to impose more tax on existing energy for renewable energy development may diminish (decrease) the total energy consumption and result in a positive effect of the energy security control point of view. However, it revealed that the taxation policy accompanies a negative side effect as it increases energy prices which deteriorates the industrial competitive! eness and causes the increase in prices (of commodities). The decrease in energy consumption due to the recession also brings down the demand of renewable energy. Therefore, as far as the renewable energy is concerned, an impact of decrease in energy consumption may be very minimal compared to that of the subsidy policy. However, it is confirmed that excess subsidy supply may possibly cause a burden instead of the benefit of renewable energy development due to the distortion of the scarce resources distribution.