(Mis)allocation of Renewable Energy Sources∗ Stefan Lampy Mario Samanoz September 29, 2020 Abstract Policies to incentivize the adoption of renewable energy sources (RES) usually offer little flexibility to adapt to heterogeneous benefits across locations. We evaluate the geographical misallocation of RES associated with the uniform nature of subsidies. We estimate the dispersion of marginal benefits from solar production in Germany and compute the social and private benefits from optimal reallocations of residential solar installations keeping total capacity fixed. We find that total value of solar would increase by 6.4% relative to the current allocation using conservative values for solar penetration. Reallocating all solar and taking into account transmission would yield considerably larger gains. JEL codes: H23, Q42, Q48, Q51 Keywords: Renewable energy sources, electricity markets, feed-in-tariffs, ancillary ser- vices, misallocation. ∗We thank Stefan Ambec, Bob Cairns, Estelle Cantillon, Natalia Fabra, Karlo Hainsch, P¨arHolmberg, Gordon Leslie, Mar Reguant, Francois Salanie, Steve Salant, Thomas Tangeras, and seminar participants at the UC3 Energy Workshop, Mannheim Energy Conference, University of Quebec at Montreal, Toulouse School of Economics, IAEE, CEA 2019 and the EAERE 2019 for their comments. S. Lamp acknowledges funding from the French National Research Agency (ANR) under the Investments for the Future program (Investissements d´ıAvenir, grant ANR-17-EURE-0010). M. Samano acknowledges financial support from the SSHRC and the FQRSC. yToulouse School of Economics, University of Toulouse Capitole, France, Email:
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[email protected] 1 Introduction Climate change mitigation policies largely rely on the adoption of renewable energy sources (RES).