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Building Blocks: Investment in Renewable and Nonrenewable Technologies


  • James Bushnell


This paper examines how the increasing penetration of intermittent renewable generation can change the economic landscape for merchant power investment in conventional thermal generation. An equilibrium model of generation investment is developed, based on the long-standing principles of finding the optimal mix of capital intensive and higher marginal cost resources to serve a market with fluctuating demand. This model is then applied to data on electricity markets from several regions of the western United States to examine how the interaction of increasing wind capacity and electricity market design affects the equilibrium mix of thermal capacity and the revenues earned by renewable suppliers.

Suggested Citation

  • James Bushnell, 2011. "Building Blocks: Investment in Renewable and Nonrenewable Technologies," RSCAS Working Papers 2011/53, European University Institute.
  • Handle: RePEc:rsc:rsceui:2011/53

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    References listed on IDEAS

    1. Cramton, Peter & Stoft, Steven, 2005. "A Capacity Market that Makes Sense," The Electricity Journal, Elsevier, vol. 18(7), pages 43-54.
    2. Severin Borenstein, 2005. "The Long-Run Efficiency of Real-Time Electricity Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 93-116.
    3. Borenstein, Severin & Bushnell, James, 2000. "Electricity Restructuring: Deregulation or Reregulation?," Competition Policy Center, Working Paper Series qt22d2q3fn, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
    4. Bushnell, James, 2005. "Electricity Resource Adequacy: Matching Policies and Goals," The Electricity Journal, Elsevier, vol. 18(8), pages 11-21, October.
    5. Palmer, Karen & Ando, Amy, 1998. "Getting on the Map: The Political Economy of State-Level Electricity Restructuring," Discussion Papers dp-98-19-rev, Resources For the Future.
    6. Nemet, Gregory F., 2006. "Beyond the learning curve: factors influencing cost reductions in photovoltaics," Energy Policy, Elsevier, vol. 34(17), pages 3218-3232, November.
    7. Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2005. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521023894, March.
      • Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2000. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521660839, March.
    8. Lamont, Alan D., 2008. "Assessing the long-term system value of intermittent electric generation technologies," Energy Economics, Elsevier, vol. 30(3), pages 1208-1231, May.
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    Cited by:

    1. Cepeda, Mauricio & Finon, Dominique, 2013. "How to correct for long-term externalities of large-scale wind power development by a capacity mechanism?," Energy Policy, Elsevier, vol. 61(C), pages 671-685.
    2. Ueckerdt, Falko & Hirth, Lion & Luderer, Gunnar & Edenhofer, Ottmar, 2013. "System LCOE: What are the costs of variable renewables?," Energy, Elsevier, vol. 63(C), pages 61-75.
    3. Chao, Hung-po, 2011. "Efficient pricing and investment in electricity markets with intermittent resources," Energy Policy, Elsevier, vol. 39(7), pages 3945-3953, July.
    4. Hirth, Lion & Ueckerdt, Falko, 2013. "Redistribution effects of energy and climate policy: The electricity market," Energy Policy, Elsevier, vol. 62(C), pages 934-947.
    5. Vithayasrichareon, Peerapat & MacGill, Iain F., 2012. "Portfolio assessments for future generation investment in newly industrializing countries – A case study of Thailand," Energy, Elsevier, vol. 44(1), pages 1044-1058.
    6. Nelson, Tim & Reid, Cameron & McNeill, Judith, 2015. "Energy-only markets and renewable energy targets: Complementary policy or policy collision?," Economic Analysis and Policy, Elsevier, vol. 46(C), pages 25-42.
    7. Hirth, Lion & Ueckerdt, Falko & Edenhofer, Ottmar, 2015. "Integration costs revisited – An economic framework for wind and solar variability," Renewable Energy, Elsevier, vol. 74(C), pages 925-939.
    8. Hirth, Lion, 2013. "The market value of variable renewables," Energy Economics, Elsevier, vol. 38(C), pages 218-236.
    9. Lion Hirth, 2013. "The Market Value of Variable Renewables. The Effect of Solar and Wind Power Variability on their Relative Price," RSCAS Working Papers 2013/36, European University Institute.
    10. Böckers, Veit & Giessing, Leonie & Rösch, Jürgen, 2013. "The green game changer: An empirical assessment of the effects of wind and solar power on the merit order," DICE Discussion Papers 104, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    11. Barbose, Galen & Wiser, Ryan & Heeter, Jenny & Mai, Trieu & Bird, Lori & Bolinger, Mark & Carpenter, Alberta & Heath, Garvin & Keyser, David & Macknick, Jordan & Mills, Andrew & Millstein, Dev, 2016. "A retrospective analysis of benefits and impacts of U.S. renewable portfolio standards," Energy Policy, Elsevier, vol. 96(C), pages 645-660.
    12. De Jonghe, C. & Hobbs, B. F. & Belmans, R., 2011. "Integrating short-term demand response into long-term investment planning," Cambridge Working Papers in Economics 1132, Faculty of Economics, University of Cambridge.
    13. repec:dau:papers:123456789/13149 is not listed on IDEAS
    14. Mendes, Carla & Soares, Isabel, 2014. "Renewable energies impacting the optimal generation mix: The case of the Iberian Electricity Market," Energy, Elsevier, vol. 69(C), pages 23-33.
    15. Bhagwat, Pradyumna C. & Richstein, Jörn C. & Chappin, Emile J.L. & de Vries, Laurens J., 2016. "The effectiveness of a strategic reserve in the presence of a high portfolio share of renewable energy sources," Utilities Policy, Elsevier, vol. 39(C), pages 13-28.
    16. Tietjen, Oliver & Pahle, Michael & Fuss, Sabine, 2016. "Investment risks in power generation: A comparison of fossil fuel and renewable energy dominated markets," Energy Economics, Elsevier, vol. 58(C), pages 174-185.
    17. Browne, Oliver & Poletti, Stephen & Young, David, 2015. "How does market power affect the impact of large scale wind investment in 'energy only' wholesale electricity markets?," Energy Policy, Elsevier, vol. 87(C), pages 17-27.


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