The impact of technical efficiency, innovation, and climate policy on the economic viability of renewable electricity generation

Jonathan Lee and Gregory Howard

Energy Economics, 2021, vol. 100, issue C

Abstract: Renewable energy is a promising technology for combating climate change, and state governments are increasingly implementing policies to encourage its adoption. Given these circumstances, it is important to assess the degree to which continued expansion of solar and wind generating capacity is desirable from an economic perspective. Stochastic frontier models of utility-scale renewable generation allow us to extrapolate the net present value of new solar and wind projects for 47 U.S. states (41 wind and 47 solar). Innovation has played a key role in solar and wind expansion with construction costs falling by 64% and 40% since 2013, respectively. Using current construction costs and electricity prices, continued solar expansion is profitable in 79% of states and wind expansion is profitable in 76% of states. Assuming a costless shift to the electricity generation frontier for renewables increases solar and wind viability to 87% and 90% of states, respectively. Finally, the outlook for solar and wind further improves under a first-best carbon tax that renders solar economically viable in 94% of states and wind viable in 93% of states. These findings are empirically robust to numerous stochastic frontier specifications and other sensitivity analyses.

Keywords: Renewable portfolio standard; Solar; Wind; Renewable generation; Stochastic frontier (search for similar items in EconPapers)
JEL-codes: H23 L94 Q47 Q48 Q54 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:100:y:2021:i:c:s0140988321002632

DOI: 10.1016/j.eneco.2021.105357

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