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

37 Pages Posted: 27 Aug 2016

See all articles by Elena Verdolini

Elena Verdolini

Fondazione Eni Enrico Mattei (FEEM), CMCC - Euro Mediterranean Centre for Climate Change

Francesco Vona

Observatoire Fran├žais des Conjonctures Economiques (OFCE) - Department for Research on Innovation and Competition

David Popp

Syracuse University - Department of Public Administration; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: August 26, 2016

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.

Keywords: Renewable Energy Investments, Fossil Energy Investments, Complementarity, Energy and Environmental Policy

JEL Classification: Q42, Q48, Q55, O33

Suggested Citation

Verdolini, Elena and Vona, Francesco and Popp, David C., Bridging the Gap: Do Fast Reacting Fossil Technologies Facilitate Renewable Energy Diffusion? (August 26, 2016). FEEM Working Paper No. 51.2016. Available at SSRN: https://ssrn.com/abstract=2830434 or http://dx.doi.org/10.2139/ssrn.2830434

Elena Verdolini (Contact Author)

Fondazione Eni Enrico Mattei (FEEM), CMCC - Euro Mediterranean Centre for Climate Change ( email )

C.so Magenta 63
Milano, 20123
Italy

Francesco Vona

Observatoire Fran├žais des Conjonctures Economiques (OFCE) - Department for Research on Innovation and Competition ( email )

250 rue Albert Einstein
Valbonne, 06560
France

HOME PAGE: http://www.ofce.sciences-po.fr/ofce/dric.htm

David C. Popp

Syracuse University - Department of Public Administration ( email )

Syracuse, NY
United States
315-443-2482 (Phone)
315-443-1075 (Fax)

HOME PAGE: http://faculty.maxwell.syr.edu/dcpopp/index.html

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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