Measuring the Potential of Renewable Energy

In this paper we measure the expected consumer welfare gains from innovation in electricity generation technologies. 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 evaluate renewable energy technologies used to generate electricity and for each, we assume an accelerated adoption rate due to technological advances. 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 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.