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

Listed author(s):
  • 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)

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.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2016.51.

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Date of creation: Aug 2016
Handle: RePEc:fem:femwpa:2016.51
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  4. Hans-Werner Sinn, 2016. "Buffering Volatility: A Study on the Limits of Germany’s Energy Revolution," NBER Working Papers 22467, National Bureau of Economic Research, Inc.
  5. Erin Baker & Meredith Fowlie & Derek Lemoine & Stanley S. Reynolds, 2013. "The Economics of Solar Electricity," Annual Review of Resource Economics, Annual Reviews, vol. 5(1), pages 387-426, June.
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  8. Stephen Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
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