Steering the Energy Transition through Optimal Subsidies and Taxes for Fluctuating Renewable Energy and Storage Facilities

The costs of technologies that harness fluctuating renewable energy, such as wind turbines and photovoltaic systems, have fallen enormously over the past 15 years. Whereas initially the only way to make such technologies economically viable for companies was through substantial subsidies, they are now close to market maturity and have also captured a considerable share of the market. Fluctuations in the availability of wind and solar over the year and over the day pose completely new challenges, which become even more daunting along the path toward carbon neutrality. This article models an electricity system in which competing firms use CO2-emitting fossil technologies, fluctuating renewables, and storage.