Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/179443 
Year of Publication: 
2017
Series/Report no.: 
Economics Working Paper Series No. 17/281
Publisher: 
ETH Zurich, CER-ETH - Center of Economic Research, Zurich
Abstract: 
Countries such as Germany and Switzerland have included the energy transition in their policy programs, setting specific targets in terms of energy production from renewables. However, the energy transition has a cost, which so far has been partly covered by subsidizing the clean production. This has produced an adverse effect, leading to overproduction in the clean sector and negative prices in the electricity spot market. An excessive subsidy, which does not takes into account technological spillovers and the elasticity of substitution, might be the cause. We use endogenous growth theory to study how the cost of the energy transition - proxied by a subsidy - is affected by these two channels. We provide a numerical solution to the model to give an insight into the magnitude of the effect considered. The main findings are: (1) technological spillovers reduce the cost of the energy transition and the subsidy becomes negative after a threshold value of relative spillover intensities; (2) a higher elasticity of substitution between the two sectors increases the cost of the energy transition.
Subjects: 
Energy transition
Negative electricity prices
Technological spillovers
Elasticity of substitution
Market size effect
JEL: 
O33
O44
Q42
Q58
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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