IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/29133.html

Soaking Up the Sun: Battery Investment, Renewable Energy, and Market Equilibrium

Author

Listed:
  • R. Andrew Butters
  • Jackson Dorsey
  • Gautam Gowrisankaran

Abstract

Renewable energy and battery storage are seen as complementary technologies that can together facilitate reductions in carbon emissions. We develop and estimate a framework to calculate the equilibrium effects of large-scale battery storage. Using data from California, we find that the first storage unit breaks even by 2024 without subsidies when the renewable energy share reaches 50%. Equilibrium effects are important: the first 5,000 MWh of storage capacity would reduce wholesale electricity prices by 5.6%, but an increase from 25,000 to 50,000 MWh would only reduce these prices by 2.6%. Large-scale batteries will reduce revenues to both dispatchable generators and renewable energy sources. The equilibrium effects lead battery adoption to be virtually non-existent until 2030, without a storage mandate or subsidy. A 30% capital cost subsidy—such as the one in the U.S. Inflation Reduction Act—achieves 5,000 MWh of battery capacity by 2024, similar to the level required under California’s storage mandate.

Suggested Citation

  • R. Andrew Butters & Jackson Dorsey & Gautam Gowrisankaran, 2021. "Soaking Up the Sun: Battery Investment, Renewable Energy, and Market Equilibrium," NBER Working Papers 29133, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29133
    Note: EEE IO
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w29133.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

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


    Cited by:

    1. Sai Bravo & Carole Haritchabalet, 2023. "Prosumers: Grid Storage vs Small Fuel-Cell," Working Papers hal-04119625, HAL.
    2. Oliver, Matthew E. & Chapman, Oliver & Grijalva, Santiago & Matisoff, Daniel C. & Ramadhani, Maghfira & West, Amanda, 2026. "Managing zero-marginal-cost, intermittent renewable energy: A survey of the engineering, economic, and policy challenges," Renewable and Sustainable Energy Reviews, Elsevier, vol. 226(PC).
    3. Brown, David P. & Muehlenbachs, Lucija, 2024. "The value of electricity reliability: Evidence from battery adoption," Journal of Public Economics, Elsevier, vol. 239(C).
    4. Ruimeng Hu & Mike Ludkovski & Hezhong Zhang, 2026. "Modeling Stochastic Multi-Agent Interaction in Intraday Battery Energy Storage Dispatch with Market Power," Papers 2605.01178, arXiv.org.
    5. Rasouli, Mohammad & Somaini, Paulo, 2024. "Contracts with aftermarket substitution: The case of PG&E and electricity batteries," Applied Energy, Elsevier, vol. 374(C).
    6. Jesse Buchsbaum & Catherine Hausman & Johanna L Mathieu & Jing Peng, 2024. "Spillovers from ancillary services to wholesale energy markets," RAND Journal of Economics, RAND Corporation, vol. 55(1), pages 87-111, March.
    7. Michele Fioretti & Junnan He & Jorge Tamayo, 2024. "Capacity, Technology Portfolios, and the Paradox of Concentration," Papers 2407.03504, arXiv.org, revised Jun 2026.
    8. Tichý, Martin & Miltner, Marek & Štogl, Ondřej & Zanocco, Chad & Bemš, Július, 2026. "Removing the negative impact of the cannibalization effect on PPAs through accumulation," Energy Policy, Elsevier, vol. 212(C).
    9. Fabra, Natalia, 2023. "Reforming European electricity markets: Lessons from the energy crisis," Energy Economics, Elsevier, vol. 126(C).
    10. Bravo-Melgarejo, Sai & Haritchabalet, Carole, 2025. "Prosumers: Grid vs. individual storage," Energy Economics, Elsevier, vol. 141(C).
    11. Westphal, Igor, 2024. "The effects of reducing renewable power intermittency through portfolio diversification," Renewable and Sustainable Energy Reviews, Elsevier, vol. 197(C).
    12. Heid, Pascal & Remmy, Kevin & Reynaert, Mathias, 2024. "Equilibrium Effects in Complementary Markets: Electric Vehicle Adoption and Electricity Pricing," TSE Working Papers 24-1589, Toulouse School of Economics (TSE), revised May 2026.
    13. Araujo, Rafael & Costa, Francisco J M & Hector, Vinícius & Sant'Anna, Marcelo, 2026. "Powerful Forests: The Welfare Implications of Deforestation for the Power Sector," SocArXiv 5cukh_v1, Center for Open Science.
    14. Lamp, Stefan & Samano, Mario, 2022. "Large-scale battery storage, short-term market outcomes, and arbitrage," Energy Economics, Elsevier, vol. 107(C).
    15. repec:bon:boncrc:crctr224_2024_615 is not listed on IDEAS
    16. Sai Bravo & Carole Haritchabalet, 2023. "Prosumers: Grid Storage vs Small Fuel-Cell," Working papers of Transitions Energétiques et Environnementales (TREE) hal-04119625, HAL.

    More about this item

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:nbr:nberwo:29133. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    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.