Economy of Renewable Energies


The EER course unit introduces the economic approach to study the interactions between the environmental system, the energy system and the economic system. Basic aspects of the configuration and functioning of markets are covered, as well as the consequences of “market failures” in the generation of environmental problems. The types of environmental/energy policy instruments are discussed, discussing how they work and their potential performance. The potential for using the economic approach for the evaluation and selection of projects is also analyzed, including the integration of environmental externalities. Basic concepts and methodologies of economic analysis are presented so that students acquire knowledge and debate the foundations, potential and limitations of economic science, in application to the study of renewable energies.

General characterization





Responsible teacher

Rui Jorge Fernandes Ferreira Santos


Weekly - 5

Total - 70

Teaching language



No requirements.


David Timmons, Jonathan M. Harris, Brian Roach, 2014. The Economics of Renewable Energy, GDAE Teaching Module on Social and Environmental Issues in Economics, Global Development and Environmental institute, Tufts Univ., USA.

EC, 2014. Guide to Cost-Benefit Analysis of Investment Projects -Economic appraisal tool for Cohesion Policy 2014-2020, Dec 2014.

IRENA, 2022. Renewable Power Generation Costs in 2021, International Renewable Energy Agency, Abu Dhabi, ISBN 978-92-9260-452-3.

IRENA, 2023. The cost of financing for renewable power, International Renewable Energy Agency, Abu Dhabi, ISBN: 978-92-9260-530-8.

Tietenberg, T., Lewis, L., 2020. Natural Resource Economics: The Essentials. International Student Edition, Routledge. (paperback: ISBN 978-0-367-28034-5)

Walter Musial, Patrick Duffy, Philipp Beiter, Melinda Marquis, Rob Hammond, Matt Shields, 2022, Offshore Wind Market Report: 2022 Edition, National Renewable Energy Laboratory (NREL), U.S. Dep. of Energy, USA.

Teaching method

The teaching methods of this course include theoretical classes in an expository format and practical classes in a participatory/collaborative format for solving exercises and discussing real cases.

Evaluation method

  • Test 1 on October 26th, 2023 (25% of the final grade);
  • Test 2 on December 14th, 2023 (35% of the final grade);
  • Group work (groups of 3 students) (40% of the final grade). The group work will focus on a topic in the area of renewable energy selected by the students, with the aim of exploring the application of the topics in the curricular unit''s program. It must be started at the beginning of the semester and completed by December 15th, 2023.

Subject matter

1. The Economy, the Energy and the Environment
1.1 The economic system and economic science
1.2 Economic system – energy system – environmental system relationships
1.3 Economic approach to identifying environmental problems and defining and applying environmental policy; the user/polluter pays principle
1.4 Environmental economics approach vs ecological economics approach
2. Introduction to Microeconomics – synthesis of basic concepts
2.1 Consumer behavior - demand
2.2 Producer behavior - supply
2.3 Markets for goods and services
2.3.1 Market functioning: market equilibrium and efficiency
2.3.2 Market in “perfect competition”
3. Market failures and Environmental Policy
3.1 Definition of “market failure”
3.2 Some “Failures” particularly relevant to the Environment; analysis of causes and consequences
3.2.1 Imperfect market structures: monopoly, duopoly, oligopoly
3.2.2 Negative and positive externalities
3.2.3 Public goods
4. Environment/Energy Policy Instruments
4.1 Instrument selection/evaluation criteria
4.2 Types of instruments: command and control; economic and market
4.3 Real cases: analysis and discussion
5. Economic and Financial Analysis of Projects / Cost-Benefit Assessment
- Economic and Financial Analysis of Projects
- Critical aspects in the preparation of the process;
- Criteria for selecting investment projects;
- Projects co-financed by European funds;
- Introduction to the Economic Assessment of Environmental Resources
- Concept of Economic Value: “Willingness to Pay” (WTP), “Willingness to Accept” (WTA); Total Economic Value - Use Value and Non-Use Value
- Evaluation Methodologies - Principles, Technique and Recommendations
- Resources traded through the market (e.g. Changes in Productivity; Cost of Illness; Opportunity Cost)
- Resources not traded in the market (e.g. Perspective of current or potential expenses - Preventive Expenses, Replacement Costs, Relocation Costs; Substitute markets - Transport Costs, Hedonic Methods, Market goods as environmental substitutes; Hypothetical markets - Contingent Valuation)
- Benefit Transfer (“Benefit Transfer”)
- Limitations of cost-benefit assessment. Ecological Economics Perspective.
6. Discussion of work developed by students (throughout the semester)
- Renewable energy costs: historical evolution and forecasts
- Feasibility and financing of offshore wind, solar energy, ...
- Feasibility of hybrid projects
- Instruments to stimulate the penetration of renewable energies
- External environmental costs of different forms of energy


Programs where the course is taught: