Decarbonizing Electricity Generation with Intermittent Sources of Energy

Stefan Ambec and Claude Crampes

Journal of the Association of Environmental and Resource Economists, 2019, vol. 6, issue 6, 1105 - 1134

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.

Date: 2019
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Working Paper: Decarbonizing Electricity Generation with Intermittent Sources of Energy (2019)
Working Paper: Decarbonizing electricity generation with intermittent sources of energy (2019)
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