Renewable energy grid with wind turbines and solar panels.

Powering the Future: How Smart Energy Policies Can Save Our Planet

Lena Voss in Climate & Environment August 2025 • 3 min read.

"A fresh look at renewable energy expansion, taxes, and subsidies from the transmission operator's perspective."

The world's increasing population and its impact on the environment has created a need for sustainable development on a global scale. The United Nations established 17 goals in 2015 to promote sustainability, emphasizing the significance of global cooperation, technology, and energy efficiency. Enhancing energy efficiency is crucial in combating the effects of climate change.

Many European Union (EU) nations have undergone significant changes in their energy sectors to promote renewable energy sources in response to the climate issue. The EU countries still need to fulfill their renewable energy source goals, despite considerable advances over the past ten years. To accommodate the expanding renewable energy infrastructure, significant investments and new grid planning techniques are needed.

Planning for transmission networks requires consideration of factors including the structure of the energy market, the level of system operational detail, and the approaches used to solving challenges. Mathematical optimization has become a key strategy for achieving optimality. Planning must also account for deregulation and incorporate decentralized strategies in the decision making of generation companies (GenCos).

Decentralized Energy Market Strategies: Carbon Taxes and Renewable Subsidies

Renewable energy grid with wind turbines and solar panels.

The study emphasizes the crucial role of transmission system operators (TSOs) in incorporating carbon taxes and incentives for Variable Renewable Energy (VRE) to improve the generation mix, which are parts of strategies involving renewables, with GenCos regarded as price-takers in perfectly competitive market environments.

The bi-level optimization model that has been presented assumes a position in which the TSO takes the initiative. By anticipating how its transmission system upgrades will affect generation capacity investments, this model balances welfare and facilitates proactive planning.

Upper Level: TSO maximizes social welfare via transmission line investments.
Lower Level: Generation companies (GenCos) make capacity investments as price-takers in perfect competition.

The research investigates the effects of various policy combinations on generation mix and social welfare in the energy market by applying a bi-level optimization model. The impact of carbon taxes, VRE incentives, and transmission infrastructure budgets are examined against the share of renewable energy, total generation, and social welfare.

Key Takeaways for a Sustainable Energy Transition

The findings highlight the complexities of integrating renewable energy sources and emphasize the importance of well-coordinated policies. While renewable energy subsidies can boost the share of renewables, they may also reduce the total amount of energy generated under specific conditions. Applying carbon taxes, renewable energy subsidies, and transmission infrastructure improvements together is more effective for driving sustainable growth in the energy sector.

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Everything You Need To Know

What role do Transmission System Operators (TSOs) play in promoting renewable energy in a decentralized energy market?

Transmission System Operators (TSOs) play a crucial role in incorporating carbon taxes and incentives for Variable Renewable Energy (VRE) to improve the generation mix. These strategies involve renewables, with Generation Companies (GenCos) regarded as price-takers in perfectly competitive market environments. TSOs help balance welfare and facilitate proactive planning by anticipating how transmission system upgrades will affect generation capacity investments. By strategically planning transmission network upgrades, TSOs can influence the investment decisions of GenCos, ultimately fostering a more sustainable energy market.

How does the bi-level optimization model work in planning for transmission networks, and what are its main components?

The bi-level optimization model used for transmission network planning operates with two levels. At the upper level, the Transmission System Operator (TSO) maximizes social welfare through strategic transmission line investments. At the lower level, Generation Companies (GenCos) make capacity investments as price-takers in a perfectly competitive market. The TSO anticipates how its transmission system upgrades will affect generation capacity investments, thus balancing welfare and enabling proactive planning. This model helps analyze the impact of various policy combinations on the generation mix and social welfare in the energy market.

What are the key factors Transmission System Operators (TSOs) consider when planning transmission networks to accommodate expanding renewable energy infrastructure?

When planning transmission networks to accommodate expanding renewable energy infrastructure, Transmission System Operators (TSOs) consider several factors. These include the structure of the energy market, the level of system operational detail, and the approaches used to solve challenges. Mathematical optimization becomes a key strategy for achieving optimality. The planning must also account for deregulation and incorporate decentralized strategies in the decision making of Generation Companies (GenCos). These considerations are crucial for ensuring that the transmission network can efficiently and effectively support the integration of renewable energy sources.

What is the impact of combining carbon taxes, renewable energy subsidies, and transmission infrastructure improvements on sustainable energy growth?

Combining carbon taxes, renewable energy subsidies, and transmission infrastructure improvements is more effective for driving sustainable growth in the energy sector. While renewable energy subsidies can boost the share of renewables, they may also reduce the total amount of energy generated under specific conditions. The coordinated implementation of carbon taxes incentivizes lower emissions, renewable energy subsidies encourage investment in green technologies, and transmission infrastructure improvements ensure efficient delivery of renewable energy. Without all three, the transition to a sustainable energy future would be less impactful.

How do carbon taxes and Variable Renewable Energy (VRE) incentives influence the generation mix, according to Transmission System Operators (TSOs)?

Transmission System Operators (TSOs) recognize that carbon taxes and Variable Renewable Energy (VRE) incentives play a crucial role in optimizing the generation mix. By incorporating carbon taxes, TSOs disincentivize the use of high-emission energy sources, thus making renewable energy sources more economically competitive. Additionally, VRE incentives encourage Generation Companies (GenCos) to invest in renewable energy technologies. This leads to a more sustainable generation mix, reducing reliance on fossil fuels and promoting cleaner energy sources. The integration of these policies, as overseen by TSOs, is vital for achieving a balanced and environmentally friendly energy landscape.