IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v120y2018icp684-696.html

Evaluating the case for supporting renewable electricity

Author

Listed:
  • Newbery, David

Abstract

Renewable electricity, particularly solar PV and wind, creates external benefits of learning-by-doing that drive down costs and reduce CO2 emissions. The Global Apollo Programme called for collective action to develop renewable energy. This paper sets out a method for assessing whether a trajectory of investment that involves initial subsidies is justified by the subsequent learning-by-doing spillovers and if so, computes the maximum justifiable additional subsidy to provide, taking account of the special features of renewable electricity – geographically dispersed and variable quality resource base and local saturation. Given current costs and learning rates, accelerating the current rate of investment appears globally socially beneficial for solar PV in most but not all cases, less so for on-shore wind. The optimal trajectory appears to involve a gradually decreasing rate of growth of installed capacity.

Suggested Citation

  • Newbery, David, 2018. "Evaluating the case for supporting renewable electricity," Energy Policy, Elsevier, vol. 120(C), pages 684-696.
    • Handle: RePEc:eee:enepol:v:120:y:2018:i:c:p:684-696
    DOI: 10.1016/j.enpol.2018.05.029
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421518303331
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.enpol.2018.05.029?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Geoffroy Dolphin & Michael G Pollitt & David M Newbery, 2020. "The political economy of carbon pricing: a panel analysis," Oxford Economic Papers, Oxford University Press, vol. 72(2), pages 472-500.
    2. Joseph B. Mazzola & Kevin F. McCardle, 1997. "The Stochastic Learning Curve: Optimal Production in the Presence of Learning-Curve Uncertainty," Operations Research, INFORMS, vol. 45(3), pages 440-450, June.
    3. repec:aen:journl:2007v28-03-a04 is not listed on IDEAS
    4. Pankaj Ghemawat & A. Michael Spence, 1985. "Learning Curve Spillovers and Market Performance," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(Supplemen), pages 839-852.
    5. repec:aen:journl:ej39-1-newbery is not listed on IDEAS
    6. Rasmussen, Tobias N., 2001. "CO2 abatement policy with learning-by-doing in renewable energy," Resource and Energy Economics, Elsevier, vol. 23(4), pages 297-325, October.
    7. Kalkuhl, Matthias & Edenhofer, Ottmar & Lessmann, Kai, 2012. "Learning or lock-in: Optimal technology policies to support mitigation," Resource and Energy Economics, Elsevier, vol. 34(1), pages 1-23.
    8. Lehmann, Paul, 2013. "Supplementing an emissions tax by a feed-in tariff for renewable electricity to address learning spillovers," Energy Policy, Elsevier, vol. 61(C), pages 635-641.
    9. Bardhan, Pranab K, 1971. "On Optimum Subsidy to a Learning Industry: An Aspect of the Theory of Infant-Industry Protection," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 12(1), pages 54-70, February.
    10. K. J. Arrow, 1971. "The Economic Implications of Learning by Doing," Palgrave Macmillan Books, in: F. H. Hahn (ed.), Readings in the Theory of Growth, chapter 11, pages 131-149, Palgrave Macmillan.
    11. Rubin, Edward S. & Azevedo, Inês M.L. & Jaramillo, Paulina & Yeh, Sonia, 2015. "A review of learning rates for electricity supply technologies," Energy Policy, Elsevier, vol. 86(C), pages 198-218.
    12. Papineau, Maya, 2006. "An economic perspective on experience curves and dynamic economies in renewable energy technologies," Energy Policy, Elsevier, vol. 34(4), pages 422-432, March.
    13. Newbery, David, 2018. "Shifting demand and supply over time and space to manage intermittent generation: The economics of electrical storage," Energy Policy, Elsevier, vol. 113(C), pages 711-720.
    14. Newbery, D. G., 2016. "A simple introduction to the economics of storage: shifting demand and supply over time and space," Cambridge Working Papers in Economics 1661, Faculty of Economics, University of Cambridge.
    15. repec:aen:journl:dn-se-a09 is not listed on IDEAS
    16. Goulder, Lawrence H. & Mathai, Koshy, 2000. "Optimal CO2 Abatement in the Presence of Induced Technological Change," Journal of Environmental Economics and Management, Elsevier, vol. 39(1), pages 1-38, January.
    17. Denholm, Paul & Margolis, Robert M., 2007. "Evaluating the limits of solar photovoltaics (PV) in electric power systems utilizing energy storage and other enabling technologies," Energy Policy, Elsevier, vol. 35(9), pages 4424-4433, September.
    18. Newbery, D., 2017. "How to judge whether supporting solar PV is justified," Cambridge Working Papers in Economics 1715, Faculty of Economics, University of Cambridge.
    19. repec:aen:journl:ej35-1-01 is not listed on IDEAS
    20. Denholm, Paul & Margolis, Robert M., 2007. "Evaluating the limits of solar photovoltaics (PV) in traditional electric power systems," Energy Policy, Elsevier, vol. 35(5), pages 2852-2861, May.
    21. Richard Layard, 2015. "In brief... A Global Apollo Programme to tackle climate change," CentrePiece - The magazine for economic performance 444, Centre for Economic Performance, LSE.
    22. Bass, Robert J. & Malalasekera, Weeratunge & Willmot, Peter & Versteeg, Henk K., 2011. "The impact of variable demand upon the performance of a combined cycle gas turbine (CCGT) power plant," Energy, Elsevier, vol. 36(4), pages 1956-1965.
    23. Sensfuß, Frank & Ragwitz, Mario & Genoese, Massimo, 2008. "The merit-order effect: A detailed analysis of the price effect of renewable electricity generation on spot market prices in Germany," Energy Policy, Elsevier, vol. 36(8), pages 3076-3084, August.
    24. repec:aen:journl:ej39-1-hirth is not listed on IDEAS
    25. Karsten Neuhoff, 2008. "Learning by Doing with Constrained Growth Rates: An Application to Energy Technology Policy," The Energy Journal, , vol. 29(2_suppl), pages 165-183, December.
    26. Andor, Mark & Voss, Achim, 2016. "Optimal renewable-energy promotion: Capacity subsidies vs. generation subsidies," Resource and Energy Economics, Elsevier, vol. 45(C), pages 144-158.
    27. Reichenbach, Johanna & Requate, Till, 2012. "Subsidies for renewable energies in the presence of learning effects and market power," Resource and Energy Economics, Elsevier, vol. 34(2), pages 236-254.
    28. A. M. Spence, 1981. "The Learning Curve and Competition," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 49-70, Spring.
    29. Rosendahl, Knut Einar, 2004. "Cost-effective environmental policy: implications of induced technological change," Journal of Environmental Economics and Management, Elsevier, vol. 48(3), pages 1099-1121, November.
    30. Dasgupta, Partha & Stiglitz, Joseph E, 1988. "Learning-by-Doing, Market Structure and Industrial and Trade Policies," Oxford Economic Papers, Oxford University Press, vol. 40(2), pages 246-268, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xin-gang, Zhao & Yi, Zuo & Hui, Wang & Zhen, Wang, 2022. "How can the cost and effectiveness of renewable portfolio standards be coordinated? Incentive mechanism design from the coevolution perspective," Renewable and Sustainable Energy Reviews, Elsevier, vol. 158(C).
    2. Tiruwork B. Tibebu & Eric Hittinger & Qing Miao & Eric Williams, 2024. "Adoption Model Choice Affects the Optimal Subsidy for Residential Solar," Energies, MDPI, vol. 17(3), pages 1-19, February.
    3. Espinosa Valderrama, Mónica & Cadena Monroy, Ángela Inés & Behrentz Valencia, Eduardo, 2019. "Challenges in greenhouse gas mitigation in developing countries: A case study of the Colombian transport sector," Energy Policy, Elsevier, vol. 124(C), pages 111-122.
    4. Newbery, David, 2018. "Policies for decarbonizing a liberalized power sector," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy, vol. 12, pages 1-24.
    5. Özdemir, Özge & Hobbs, Benjamin F. & van Hout, Marit & Koutstaal, Paul R., 2020. "Capacity vs energy subsidies for promoting renewable investment: Benefits and costs for the EU power market," Energy Policy, Elsevier, vol. 137(C).
    6. Newbery, David M., 2023. "High renewable electricity penetration: Marginal curtailment and market failure under “subsidy-free” entry," Energy Economics, Elsevier, vol. 126(C).
    7. Özdemir, Ö. & Hobbs, B. & van Hout, M. & Koutstaal, P., 2019. "Capacity vs Energy Subsidies for Renewables: Benefits and Costs for the 2030 EU Power Market," Cambridge Working Papers in Economics 1927, Faculty of Economics, University of Cambridge.
    8. Nemet, Gregory F. & Lu, Jiaqi & Rai, Varun & Rao, Rohan, 2020. "Knowledge spillovers between PV installers can reduce the cost of installing solar PV," Energy Policy, Elsevier, vol. 144(C).
    9. Zhou, Li & Duan, Maosheng & Yu, Yadong & Zhang, Xiliang, 2018. "Learning rates and cost reduction potential of indirect coal-to-liquid technology coupled with CO2 capture," Energy, Elsevier, vol. 165(PB), pages 21-32.
    10. Fabra, Natalia, 2021. "The energy transition: An industrial economics perspective," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    11. Zhao, Jinyang & Yu, Yadong & Ren, Hongtao & Makowski, Marek & Granat, Janusz & Nahorski, Zbigniew & Ma, Tieju, 2022. "How the power-to-liquid technology can contribute to reaching carbon neutrality of the China's transportation sector?," Energy, Elsevier, vol. 261(PA).
    12. Simshauser, Paul & Gohdes, Nicholas, 2025. "Incomplete markets, pumped hydro storage and the role of policy in Australia's national electricity market," Energy Policy, Elsevier, vol. 204(C).
    13. Grubb, Michael & Lange, Rutger-Jan & Cerkez, Nicolas & Sognnaes, Ida & Wieners, Claudia & Salas, Pablo, 2024. "Dynamic determinants of optimal global climate policy," Structural Change and Economic Dynamics, Elsevier, vol. 71(C), pages 490-508.
    14. Tibebu, Tiruwork B. & Hittinger, Eric & Miao, Qing & Williams, Eric, 2022. "Roles of diffusion patterns, technological progress, and environmental benefits in determining optimal renewable subsidies in the US," Technological Forecasting and Social Change, Elsevier, vol. 182(C).
    15. David Newbery, 2020. "Club goods and a tragedy of the commons: the Clean Energy Package and wind curtailment," Working Papers EPRG2036, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    16. Simshauser, Paul & Newbery, David, 2024. "Non-firm vs priority access: On the long run average and marginal costs of renewables in Australia," Energy Economics, Elsevier, vol. 136(C).
    17. Simshauser, P. & Gohde, N., 2024. "3-Party Covenant Financing of 'Semi-Regulated' Pumped Hydro Assets," Cambridge Working Papers in Economics 2425, Faculty of Economics, University of Cambridge.
    18. Volker Roeben & Rafael Emmanuel Macatangay, 2023. "Bluer Than Blue: Exit from Policy Support for Clean Marine Energy," Sustainability, MDPI, vol. 15(19), pages 1-19, October.
    19. Roach, Martin & Meeus, Leonardo, 2023. "An energy system model to study the impact of combining carbon pricing with direct support for renewable gases," Ecological Economics, Elsevier, vol. 210(C).
    20. Michael Pollitt & Geoffroy Dolphin, 2021. "Should the EU ETS be extended to road transport and heating fuels?," Working Papers EPRG2119, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    21. Romeiro, Diogo Lisbona & Almeida, Edmar Luiz Fagundes de & Losekann, Luciano, 2020. "Systemic value of electricity sources – What we can learn from the Brazilian experience?," Energy Policy, Elsevier, vol. 138(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Baldwin, Elizabeth & Cai, Yongyang & Kuralbayeva, Karlygash, 2020. "To build or not to build? Capital stocks and climate policy∗," Journal of Environmental Economics and Management, Elsevier, vol. 100(C).
    2. Lancker, Kira & Quaas, Martin F., 2019. "Increasing marginal costs and the efficiency of differentiated feed-in tariffs," Energy Economics, Elsevier, vol. 83(C), pages 104-118.
    3. Malte Schwoon, 2006. "Learning-by-doing, Learning Spillovers and the Diffusion of Fuel Cell Vehicles," Working Papers FNU-112, Research unit Sustainability and Global Change, Hamburg University, revised Jun 2006.
    4. Nachtigall, Daniel & Rübbelke, Dirk, 2016. "The green paradox and learning-by-doing in the renewable energy sector," Resource and Energy Economics, Elsevier, vol. 43(C), pages 74-92.
    5. Sun, Xiaojie & Tang, Wansheng & Zhang, Jianxiong & Chen, Jing, 2021. "The impact of quantity-based cost decline on supplier encroachment," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 147(C).
    6. Thompson, Peter, 2010. "Learning by Doing," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 429-476, Elsevier.
    7. Lehmann, Paul, 2013. "Supplementing an emissions tax by a feed-in tariff for renewable electricity to address learning spillovers," Energy Policy, Elsevier, vol. 61(C), pages 635-641.
    8. Kverndokk, Snorre & Rosendahl, Knut Einar, 2007. "Climate policies and learning by doing: Impacts and timing of technology subsidies," Resource and Energy Economics, Elsevier, vol. 29(1), pages 58-82, January.
    9. Way, Rupert & Lafond, François & Lillo, Fabrizio & Panchenko, Valentyn & Farmer, J. Doyne, 2019. "Wright meets Markowitz: How standard portfolio theory changes when assets are technologies following experience curves," Journal of Economic Dynamics and Control, Elsevier, vol. 101(C), pages 211-238.
    10. Söderholm, Patrik & Sundqvist, Thomas, 2007. "Empirical challenges in the use of learning curves for assessing the economic prospects of renewable energy technologies," Renewable Energy, Elsevier, vol. 32(15), pages 2559-2578.
    11. Emmanuel Petrakis & Eric Rasmusen & Santanu Roy, 1997. "The Learning Curve in a Competitive Industry," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 248-268, Summer.
    12. Reichenbach, Johanna & Requate, Till, 2012. "Subsidies for renewable energies in the presence of learning effects and market power," Resource and Energy Economics, Elsevier, vol. 34(2), pages 236-254.
    13. Benkard, C. Lanier, 2000. "A Dynamic Analysis of the Market for Wide-Bodied Commercial Aircraft," Research Papers 1636, Stanford University, Graduate School of Business.
    14. Malte Schwoon, 2006. "A Tool to Optimize the Initial Distribution of Hydrogen Filling Stations," Working Papers FNU-110, Research unit Sustainability and Global Change, Hamburg University, revised Jun 2006.
    15. Kverndokk, Snorre & Rosendahl, Knut Einar & Rutherford, Thomas F., 2004. "Climate policies and induced technological change: Impacts and timing of technology subsidies," Memorandum 05/2004, Oslo University, Department of Economics.
    16. Golombek Rolf & Hoel Michael, 2006. "Second-Best Climate Agreements and Technology Policy," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 6(1), pages 1-30, January.
    17. Koji Kotani & Makoto Kakinaka, 2017. "Some implications of environmental regulation on social welfare under learning-by-doing of eco-products," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 19(1), pages 121-149, January.
    18. Danial Asmat, 2021. "Collusion Along the Learning Curve: Theory and Evidence From the Semiconductor Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 69(1), pages 83-108, March.
    19. Liu, An-Hsiang & Siebert, Ralph B., 2022. "The competitive effects of declining entry costs over time: Evidence from the static random access memory market," International Journal of Industrial Organization, Elsevier, vol. 80(C).
    20. Tombak, Mihkel M., 2006. "Strategic asymmetry," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 339-350, November.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:120:y:2018:i:c:p:684-696. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.