Abstract
For the last 20 years deployment of variable renewable energy (VRE) sources such as wind and solar have increased rapidly. The high growth rates of investment have been largely credited to the Feed-in Tariff (FiT) policy which acts as a subsidy to VRE producers. Increasing the share of green energy in the generation mix is crucial in the fight against climate change, but also induce problems in the energy market because of the variable and uncertain supply, known as integration costs. The FiT subsidy is raised by taxing the consumption of energy which can create welfare losses. In this thesis, I will review the literature and economic theories behind how high levels of VRE will change the energy market over time. Furthermore, I will discuss how the FiT scheme design can be changed to mitigate integration costs. I find that different FiT schemes will have advantages and disadvantages when it comes to investment incentives, mitigation of integration costs and social welfare. The policy makers choice of which FiT scheme to implement should depend on long-term technological developments in the energy market such as storage capacity and generation flexibility.