Flexibility-friendly support policies: A Nordic and Baltic perspective

Abstract

This paper introduces the concept of flexibility-friendly support policies, i.e. state-of-the-system-dependent sub-sidies given to producers of electricity who base their output on renewable energy sources (RES). Such policies increase with demand, decrease with the availability of Variable Renewable Energy (VRE) producers and, overall, follow the power system's residual load. The paper presents a microeconomic framework to analyze this and other desirable properties of support mechanisms. To illustrate the concept, it uses the present-day policies of Nordic and Baltic countries (Denmark, Estonia, Finland, Latvia, Lithuania, Sweden and Norway) as a case study.