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Cheaper solar, cleaner grid?

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  • Li, Haoyang
  • Lin, Wen

Abstract

Although wind capacity cost is not expected to experience large changes in the near future, solar capacity cost is projected to drop by 45% in roughly thirty years. Using an analytical model and a dynamic structural simulation model, we show that wind energy capacity investment first increases but then decreases under the projected solar cost decline. Results indicate that when solar cost drops from $880/kW to $700/kW, CO2 emissions increase by 12.9% due to the decline in wind energy investment, indicating that cheaper solar cost does not necessarily imply a cleaner grid without any carbon policy intervention. However, if the regulator requires a minimum of 36% renewable penetration rate, social welfare from renewable investment when solar cost arrives at $700/kW would increase by $0.74 billion/year. This study illustrates the importance of policies such as the renewable portfolio standards under future decline in solar capacity cost if a carbon tax is politically infeasible.

Suggested Citation

  • Li, Haoyang & Lin, Wen, 2023. "Cheaper solar, cleaner grid?," Energy Economics, Elsevier, vol. 127(PB).
    • Handle: RePEc:eee:eneeco:v:127:y:2023:i:pb:s0140988323005935
    DOI: 10.1016/j.eneco.2023.107095
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    References listed on IDEAS

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    More about this item

    Keywords

    Solar energy; Wind energy; Value dependence; Emission rebound;
    All these keywords.

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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