Working Paper: NBER ID: w24980
Authors: James Bushnell; Kevin Novan
Abstract: Policies supporting investment in renewable electricity have been a cornerstone of climate policy in many parts of the world. While previous empirical work explores the economic and environmental impacts of renewable production, the focus has exclusively been on the short-run impacts of expanding renewable supply. In this paper, we shed light on the longer run impacts of renewable expansions. Focusing on the California electricity market, we estimate how wholesale electricity prices have responded to a dramatic increase in utility-scale solar capacity. While a substantial decline in daily average prices can be attributed to the solar capacity expansion, this average price impact masks a substantial decrease in mid-day prices combined with an increase in shoulder hour prices. These results imply that short-term power markets are responding to the renewable expansion in a fashion that could sustain more flexible conventional generation, while seriously undermining the economic viability of traditional baseload generation technologies.
Keywords: renewable energy; wholesale electricity prices; California electricity market; solar capacity; market dynamics
JEL Codes: L51; Q41; Q42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| expansion of utility-scale solar capacity in California (L94) | decline in average wholesale electricity prices (L97) |
| expansion of utility-scale solar capacity in California (L94) | decline in average wholesale electricity prices during midday hours (L97) |
| expansion of utility-scale solar capacity in California (L94) | increase in prices during non-daylight hours (L97) |
| increase in solar capacity (Q42) | decrease in average revenue generated by solar capacity (L94) |
| expansion of renewables (Q42) | undermine financial viability of conventional generators (L94) |
| expansion of renewables (Q42) | stable or increasing profits for higher marginal cost generators (D40) |