Working Paper: NBER ID: w22454
Authors: Elena Verdolini; Francesco Vona; David Popp
Abstract: The diffusion of renewable energy in the power system implies high supply variability. Lacking economically viable storage options, renewable energy integration has so far been possible thanks to the presence of fast-reacting mid-merit fossil-based technologies, which act as back-up capacity. This paper discusses the role of fossil-based power generation technologies in supporting renewable energy investments. We study the deployment of these two technologies conditional on all other drivers in 26 OECD countries between 1990 and 2013. We show that a 1% percent increase in the share of fast-reacting fossil generation capacity is associated with a 0.88% percent increase in renewable in the long run. These results are robust to various modifications in our empirical strategy, and most notably to the use of system-GMM techniques to account for the interdependence of renewable and fast-reacting fossil investment decisions. Our analysis points to the substantial indirect costs of renewable energy integration and highlights the complementarity of investments in different generation technologies for a successful decarbonization process.
Keywords: Renewable Energy; Fossil Technologies; Energy Policy; OECD; System GMM
JEL Codes: O33; Q42; Q48; Q55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fast-reacting fossil (FRF) capacity (L94) | renewable energy (RE) capacity (Q42) |