Abstract
We examine policy instruments that aim to decarbonize electricity production by replacing fossil fuel energy with intermittent renewable sources, namely, wind and solar power. We consider a model of investment, production, and storage with two sources of energy: one is clean but intermittent (wind or solar), whereas the other one is reliable but polluting (thermal power). We first determine the first-best energy mix depending on the social cost of polluting emissions. We then show that, to implement the socially efficient energy mix without a carbon tax, feed-in tariffs and renewable portfolio standards must be complemented with a price cap and volume-limited capacity payments.
Keywords
electricity, renewables, intermittency, storage, feed-in tariff, carbon emissions.;
JEL codes
- D24: Production • Cost • Capital • Capital, Total Factor, and Multifactor Productivity • Capacity
- D61: Allocative Efficiency • Cost–Benefit Analysis
- Q41: Demand and Supply • Prices
- Q42: Alternative Energy Sources
- Q48: Government Policy
Replaces
Stefan Ambec, and Claude Crampes, “Decarbonizing electricity generation with intermittent sources of energy”, TSE Working Paper, n. 15-603, September 2015, revised May 2019.
Reference
Stefan Ambec, and Claude Crampes, “Decarbonizing electricity generation with intermittent sources of energy”, Journal of the Association of Environmental and Resource Economists, vol. 6, n. 6, November 2019, pp. 919–948.
See also
Published in
Journal of the Association of Environmental and Resource Economists, vol. 6, n. 6, November 2019, pp. 919–948