Water, Wind, and Fire: The Cost of the Energy Transition
43 Pages Posted: 22 May 2024
Abstract
We consider the energy transition in a tractable model of electricity markets that incorporates renewables with storage. Storage smooths costs over time and complements the intermittency of renewables. We calibrate our model to data from Uruguay, Brazil, and Argentina, countries with different capacity matrices and distinct natural characteristics. To approach zero emissions, their total energy costs must increase by at least 20\%, 40%, and 70%, respectively, from their current levels. We obtain a convex cost curve for reducing emissions, which is very steep as emissions get close to zero. Economically viable energy transition policies should focus on net-zero carbon emissions.
Keywords: Electricity markets, hydroelectric generation, intermittent sources, climate change
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