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Intermittency and the Value of Renewable Energy

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  • Gautam Gowrisankaran
  • Stanley S. Reynolds
  • Mario Samano
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    Abstract

    A key problem with renewable energy is intermittency. This paper develops a method to quantify the social costs of large-scale renewable energy generation. The method is based on a theoretical model of electricity system operations that allows for endogenous choices of generation capacity investment, reserve operations, and demand-side management. We estimate the model using generator characteristics, solar output, electricity demand, and weather forecasts for an electric utility in southeastern Arizona. The estimated welfare loss associated with a 20% solar photovoltaic mandate is 11% higher than the average cost difference between solar generation and natural gas generation. Unforecastable intermittency yields welfare loss equal to 3% of the average cost of solar. Eliminating a mandate provision requiring a minimum percentage of distributed solar generation increases welfare. With a $21/ton social cost of CO2 this mandate is welfare neutral if solar capacity costs decrease by 65%.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17086.

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    Date of creation: May 2011
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    Handle: RePEc:nbr:nberwo:17086

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    Cited by:
    1. Lion Hirth, 2012. "The Market Value of Variable Renewables," Working Papers 2012.15, Fondazione Eni Enrico Mattei.
    2. Severin Borenstein, 2012. "The Private and Public Economics of Renewable Electricity Generation," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 67-92, Winter.
    3. Fell, Harrison & Linn, Joshua, 2013. "Renewable electricity policies, heterogeneity, and cost effectiveness," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 688-707.
    4. Neal Detert & Koji Kotani, 2012. "Real options approach to renewable energy investments in Mongolia," Working Papers EMS_2012_10, Research Institute, International University of Japan.
    5. Průša, Jan & Klimešová, Andrea & Janda, Karel, 2013. "Consumer loss in Czech photovoltaic power plants in 2010–2011," Energy Policy, Elsevier, vol. 63(C), pages 747-755.

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