Renewable energy grid with interconnected wind turbines and solar panels.

Powering the Future: Balancing Renewable Energy Expansion with Smart Policy

Reese Marlowe in Climate & Environment June 2025 • 3 min read.

"A look into how strategic taxes, subsidies, and infrastructure investments can drive a sustainable energy transition."

The global push for sustainable development has made renewable energy a critical focus for policymakers and energy companies. As the world's population grows, so does the demand for energy, making it essential to transition away from fossil fuels to reduce environmental impact and ensure a stable future.

Many countries are revamping their energy sectors to include more renewable sources like solar, wind, and hydropower. However, integrating these variable renewable energy sources (VREs) requires significant investment and careful planning. The challenge lies in creating policies that encourage renewable energy production while maintaining a reliable and affordable energy supply.

A recent study explores how transmission system operators (TSOs) can work with governments to promote renewable energy. By strategically using carbon taxes, renewable energy subsidies, and infrastructure investments, TSOs can play a key role in driving the energy transition.

The Balancing Act: Taxes, Subsidies, and Infrastructure

Renewable energy grid with interconnected wind turbines and solar panels.

The study uses a bi-level optimization model to simulate energy market dynamics. This model looks at how TSOs can make investments in transmission lines to improve grid infrastructure, while also considering how power companies make their own investment decisions. The model assumes that these power companies act as price-takers in a competitive market, meaning they respond to market signals rather than dictating prices.

The research considers three main factors: transmission infrastructure expansion budgets, carbon emission taxes, and subsidies for renewable energy generation. By analyzing different combinations of these factors, the study assesses their impact on:

The share of renewable energy in the generation mix.
The total amount of energy generated.
Overall social welfare.

The model was applied to both a simplified three-node energy system and a more complex case study representing the Nordic and Baltic countries. The results offer valuable insights into how different policy combinations can affect the energy landscape.

Key Findings and Policy Implications

The study reveals several important findings: Simply increasing the transmission infrastructure budget (TEB) is ineffective if power companies aren't also investing in new generation capacity. Renewable energy subsidies can sometimes lead to a decrease in total energy generation if not carefully managed. Combining carbon taxes, renewable energy subsidies, and strategic infrastructure investments produces the most positive impact on renewable energy adoption and overall social welfare. High carbon tax values alone don't guarantee a significant impact; the combination of subsidies and infrastructure investment is crucial.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: 10.1016/j.jclepro.2024.141955,

Title: Renewable Energy Expansion Under Taxes And Subsidies: A Transmission Operator'S Perspective

Subject: math.oc econ.gn q-fin.ec

Authors: Nikita Belyak, Steven A. Gabriel, Nikolay Khabarov, Fabricio Oliveira

Published: 21-02-2023

Everything You Need To Know

What is the primary focus for policymakers and energy companies in the current global context?

The primary focus is on renewable energy sources such as solar, wind, and hydropower, which are key to transitioning away from fossil fuels. This shift is essential to reduce environmental impact, ensure a stable future, and meet the growing global energy demand. The expansion of renewable energy is driven by the push for sustainable development and the increasing world population's energy needs.

How do Transmission System Operators (TSOs) contribute to promoting renewable energy, and what tools do they use?

TSOs can play a key role in driving the energy transition by using a combination of strategic carbon taxes, renewable energy subsidies, and infrastructure investments. They collaborate with governments to optimize these tools. Infrastructure investments improve the grid's capacity to handle variable renewable energy sources (VREs), making the energy supply more reliable and facilitating the integration of renewables.

What are the critical factors analyzed in the study's bi-level optimization model, and what impact do they have on the energy sector?

The study's bi-level optimization model analyzes three primary factors: transmission infrastructure expansion budgets (TEB), carbon emission taxes, and subsidies for renewable energy generation. The model assesses their impact on the share of renewable energy in the generation mix, the total amount of energy generated, and overall social welfare. The findings reveal how different policy combinations influence the energy landscape and provide valuable insights for policymakers.

Why is simply increasing the transmission infrastructure budget (TEB) not always effective in promoting renewable energy?

Increasing the transmission infrastructure budget (TEB) alone is ineffective if power companies do not also invest in new generation capacity. The study shows that the TEB's impact is limited without corresponding investments in renewable energy generation. This highlights the need for a balanced approach that combines infrastructure improvements with incentives for power companies to invest in renewable energy sources.

What policy combination yields the most positive outcomes for renewable energy adoption and social welfare, and why?

The most effective policy combination involves combining carbon taxes, renewable energy subsidies, and strategic infrastructure investments. While high carbon tax values alone may not guarantee a significant impact, the synergy between subsidies and infrastructure investment is crucial. This approach ensures increased renewable energy adoption and enhances overall social welfare by optimizing energy generation and promoting sustainable practices.