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Declining Fossil-Plant Utilisation and Falling Substitutability with Wind & Solar

Author

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  • Anthony Wiskich

Abstract

The elasticity of substitution between wind and solar (W&S) and fossil-fuel electricity generation is pivotal for the cost of decarbonisation, yet unsettled. It is not a constant: as intermittent W&S penetration deepens, integration costs rise and substitutability falls. We estimate this profile from the capacity margin - a reduced-form, supply-side measure of how fast utilisation of the retained fossil fleet falls as the W&S share rises. In a country panel through 2025 the elasticity is high - about nine at today's 15% share of generation - and falls to about four as W&S penetration deepens; an independent, price-based integration-cost literature finds a similar decline. Because substitutability falls as abatement deepens, non-uniform carbon prices across regions grow more inefficient the deeper the abatement, strengthening the case for harmonising carbon prices internationally as the transition advances.

Suggested Citation

  • Anthony Wiskich, 2026. "Declining Fossil-Plant Utilisation and Falling Substitutability with Wind & Solar," CAMA Working Papers 2026-91, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2026-91
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    File URL: https://crawford.anu.edu.au/sites/default/files/2026-11/91_2026_Wiskich.pdf
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    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • 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
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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