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Measuring the Contribution to the Economy of Investments in Renewable Energy: Estimates of Future Consumer Gains

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  • Austin, David
  • Macauley, Molly

    ()
    (Resources for the Future)

  • Darmstadter, Joel

    ()
    (Resources for the Future)

  • Shih, Jhih-Shyang

    ()
    (Resources for the Future)

  • Aronow, Emily
  • Bath, Tom

Abstract

In this paper we develop a cost index–based measure of the expected consumer welfare gains from innovation in electricity generation technologies. To illustrate our approach, we estimate how much better off consumers would be from 2000 to 2020 as renewable energy technologies continue to be improved and gradually adopted, compared with a counterfactual scenario that allows for continual improvement of conventional technology. We proceed from the position that the role and prospects of renewable energy are best assessed within a market setting that considers competing energy technologies and sources. We evaluate five renewable energy technologies used to generate electricity: solar photovoltaics, solar thermal, geothermal, wind, and biomass. For each, we assume an accelerated adoption rate due to technological advances, and we evaluate the benefits against a baseline technology, combined-cycle gas turbine, which experts cite as the conventional technology most likely to be installed as incremental capacity over the next decade. We evaluate benefits against both the conventional combined-cycle gas turbine prevalent at this time and a more advanced combined-cycle gas turbine expected to be employed during the coming decade. We estimate the model for two geographic regions of the nation for which renewable energy is, or can be expected to be, a somewhat sizable portion of the electricity market—California and the north central United States. In present-value terms we find that median consumer welfare gains over 20 years vary markedly among the renewable technologies, ranging from large negative values (welfare losses) to large positive values (welfare gains). The effect of uncertainty can lead to estimates that are 20% to 40% larger or smaller than median predicted values. Our results suggest that portfolios that give equal weight to the use of each generation technology are likely to lead to consumer losses in our regions, regardless of the role of the externalities that we consider. However, when the portfolio is more heavily weighted toward certain renewables, consumer gains can be positive.

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Bibliographic Info

Paper provided by Resources For the Future in its series Discussion Papers with number dp-02-05-.

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Date of creation: 01 Feb 2002
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Handle: RePEc:rff:dpaper:dp-02-05-

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Keywords: energy economics; technical change;

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References

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  1. Austin, David & Macauley, Molly, 2000. "Estimating Future Consumer Welfare Gains from Innovation: The Case of Digital Data Storage," Discussion Papers dp-00-13, Resources For the Future.
  2. Krupnick, Alan J. & Burtraw, Dallas, 1996. "The social costs of electricity: Do the numbers add up?," Resource and Energy Economics, Elsevier, vol. 18(4), pages 423-466, December.
  3. Bresnahan, Timothy F, 1986. "Measuring the Spillovers from Technical Advance: Mainframe Computers inFinancial Services," American Economic Review, American Economic Association, vol. 76(4), pages 742-55, September.
  4. Bohi, Douglas R. & Toman, Michael A., 1993. "Energy security: externalities and policies," Energy Policy, Elsevier, vol. 21(11), pages 1093-1109, November.
  5. Burtraw, Dallas & Palmer, Karen & Darmstadter, Joel & McVeigh, James, 1999. "Winner, Loser, or Innocent Victim? Has Renewable Energy Performed As Expected?," Discussion Papers dp-99-28, Resources For the Future.
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Cited by:
  1. Darmstadter, Joel, 2003. "The Economic and Policy Setting of Renewable Energy: Where Do Things Stand?," Discussion Papers dp-03-64, Resources For the Future.
  2. Macauley, Molly & Shih, Jhih-Shyang, 2003. "Effects of Carbon Policies and Technology Change," Discussion Papers dp-03-14, Resources For the Future.

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