Performance comparison of renewable incentive schemes using optimal control

Many governments worldwide have instituted incentive schemes for renewable electricity producers in order to meet carbon emissions targets. These schemes aim to boost investment and hence growth in renewable energy industries. This paper examines four such schemes: premium feed-in tariffs, fixed feed-in tariffs, feed-in tariffs with contract for difference and the renewable obligations scheme. A generalised mathematical model of industry growth is presented and fitted with data from the UK onshore wind industry. The model responds to subsidy from each of the four incentive schemes. A utility or 'fitness' function that maximises installed capacity at some fixed time in the future while minimising total cost of subsidy is postulated. Using this function, the optimal strategy for provision and timing of subsidy for each scheme is calculated. Finally, a comparison of the performance of each scheme, given that they use their optimal control strategy, is presented. This model indicates that the premium feed-in tariff and renewable obligation scheme produce the joint best results. - Highlights: • Stochastic differential equation model of renewable energy industry growth and prices, using UK onshore wind data 1992–2010. • Cost of production reduces as cumulative installed capacity of wind energy increases, consistent with the theory of learning. • Studies the effect of subsidy using feed-in tariff schemes, and the 'renewable obligations' scheme. • We determine the optimal timing and quantity of subsidy required to maximise industry growth and minimise costs. • The premium feed-in tariff scheme and the renewable obligations scheme produce the best results under optimal control