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Bridging the Gap: Do Fast Reacting Fossil Technologies Facilitate Renewable Energy Diffusion?

Author

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  • Elena Verdolini

    (Fondazione Eni Enrico Mattei and Centro Euro-Mediterraneo per i Cambiamenti Climatici)

  • Francesco Vona

    (OFCE Sciences-Po and SKEMA Business School)

  • David Popp

    (Syracuse University and NBER)

Abstract

The diffusion of renewable energy in the power system implies high supply variability. Lacking economically viable storage options, renewable energy integration has so far been possible thanks to the presence of fast-reacting mid-merit fossil-based technologies, which act as back-up capacity. This paper discusses the role of fossil-based power generation technologies in supporting renewable energy investments. We study the deployment of these two technologies conditional on all other drivers in 26 OECD countries between 1990 and 2013. We show that a 1% percent increase in the share of fast-reacting fossil generation capacity is associated with a 0.88% percent increase in renewable in the long run. These results are robust to various modifications in our empirical strategy, and most notably to the use of system-GMM techniques to account for the interdependence of renewable and fast-reacting fossil investment decisions. Our analysis points to the substantial indirect costs of renewable energy integration and highlights the complementarity of investments in different generation technologies for a successful decarbonization process.

Suggested Citation

  • Elena Verdolini & Francesco Vona & David Popp, 2016. "Bridging the Gap: Do Fast Reacting Fossil Technologies Facilitate Renewable Energy Diffusion?," Working Papers 2016.51, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2016.51
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    Cited by:

    1. Nesta, Lionel & Verdolini, Elena & Vona, Francesco, 2018. "Threshold Policy Effects and Directed Technical Change in Energy Innovation," CSI: Climate and Sustainable Innovation 268731, Fondazione Eni Enrico Mattei (FEEM).
    2. Yongchao Zeng & Peiwu Dong & Yingying Shi & Yang Li, 2018. "On the Disruptive Innovation Strategy of Renewable Energy Technology Diffusion: An Agent-Based Model," Energies, MDPI, Open Access Journal, vol. 11(11), pages 1-21, November.
    3. Nicoletta Batini & Ian Parry & Philippe Wingender, 2021. "Climate Mitigation Policy in Denmark: A Prototype for Other Countries," CESifo Working Paper Series 8895, CESifo.
    4. Bento, Antonio M. & Garg, Teevrat & Kaffine, Daniel, 2018. "Emissions reductions or green booms? General equilibrium effects of a renewable portfolio standard," Journal of Environmental Economics and Management, Elsevier, vol. 90(C), pages 78-100.
    5. Abdulla, A. & Vaishnav, P. & Sergi, B. & Victor, D.G., 2019. "Limits to deployment of nuclear power for decarbonization: Insights from public opinion," Energy Policy, Elsevier, vol. 129(C), pages 1339-1346.
    6. Kamel Almutairi & Greg Thoma & Alvaro Durand-Morat, 2018. "Ex-Ante Analysis of Economic, Social and Environmental Impacts of Large-Scale Renewable and Nuclear Energy Targets for Global Electricity Generation by 2030," Sustainability, MDPI, Open Access Journal, vol. 10(8), pages 1-25, August.
    7. Conti, C. & Mancusi, M.L. & Sanna-Randaccio, F. & Sestini, R. & Verdolini, E., 2018. "Transition towards a green economy in Europe: Innovation and knowledge integration in the renewable energy sector," Research Policy, Elsevier, vol. 47(10), pages 1996-2009.
    8. Fard, Amirhossein & Javadi, Siamak & Kim, Incheol, 2020. "Environmental regulation and the cost of bank loans: International evidence," Journal of Financial Stability, Elsevier, vol. 51(C).
    9. Lucas Eder & Marko Ban & Gerhard Pirker & Milan Vujanovic & Peter Priesching & Andreas Wimmer, 2018. "Development and Validation of 3D-CFD Injection and Combustion Models for Dual Fuel Combustion in Diesel Ignited Large Gas Engines," Energies, MDPI, Open Access Journal, vol. 11(3), pages 1-23, March.
    10. Tadeusz Skoczkowski & Sławomir Bielecki & Joanna Wojtyńska, 2019. "Long-Term Projection of Renewable Energy Technology Diffusion," Energies, MDPI, Open Access Journal, vol. 12(22), pages 1-24, November.
    11. Yanbing Mao & Kui Liu & Jizhi Zhou, 2019. "Evolution of Green Industrial Growth between Europe and China based on the Energy Consumption Model," Sustainability, MDPI, Open Access Journal, vol. 11(24), pages 1-15, December.
    12. Li Li & Junqi Liu & Lei Zhu, 2020. "Dynamics of energy technology diffusion under uncertainty," Applied Stochastic Models in Business and Industry, John Wiley & Sons, vol. 36(5), pages 795-808, September.
    13. Li, Jianglong & Huang, Jiashun, 2020. "The expansion of China's solar energy: Challenges and policy options," Renewable and Sustainable Energy Reviews, Elsevier, vol. 132(C).
    14. Kim, Haein & Du, Xiaodong & Johnston, Craig, 2018. "Transition of Electricity System towards Decarbonization: The Role of Biomass," 2018 Annual Meeting, August 5-7, Washington, D.C. 274451, Agricultural and Applied Economics Association.
    15. Elena Verdolini & Valentina Bosetti, 2017. "Environmental Policy and the International Diffusion of Cleaner Energy Technologies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(3), pages 497-536, March.
    16. Nicolas Arregui & Ian Parry, 2021. "Reconsidering Climate Mitigation Policy in the UK," CESifo Working Paper Series 8920, CESifo.
    17. Mare Sarr & Joëlle Noailly, 2017. "Innovation, Diffusion, Growth and the Environment: Taking Stock and Charting New Directions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(3), pages 393-407, March.
    18. Lionel Nesta & Elena Verdolini & Francesco Vona, 2018. "Threshold Policy Effects and Directed Technical Change in Energy Innovation," GREDEG Working Papers 2018-01, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.

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    More about this item

    Keywords

    Renewable Energy Investments; Fossil Energy Investments; Complementarity; Energy and Environmental Policy;
    All these keywords.

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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