Saving for a Dry Day: Coal, Dams, and the Energy Transition

Michele Fioretti and Jorge Tamayo
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Jorge Tamayo: Harvard Business School - Harvard University

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Abstract: Renewable generation creates a tradeoff between current and future energy production as generators produce energy by releasing previously stored resources. Studying the Colombian market, we find that diversified firms strategically substitute fossil fuels for hydropower before droughts. This substitution mitigates the surge in market prices due to the lower hydropower capacity available during dry periods. Diversification can increase prices, instead, if it results from mergers steepening a firm's residual demand. Thus, integrating production technologies within firms can smooth the clean-energy transition by offsetting higher prices during scarcity periods if the unaffected technologies help store renewables more than exercise market power.

Keywords: Energy transition; Renewables; Hydropower generation; Diversified production technologies; Energy storage; Wholesale electricity markets (search for similar items in EconPapers)
Date: 2021-08-01
New Economics Papers: this item is included in nep-dem, nep-ene, nep-env and nep-reg
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Working Paper: Saving for a Dry Day: Coal, Dams, and the Energy Transition (2021)
Working Paper: Saving for a Dry Day: Coal, Dams, and the Energy Transition (2021)
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