The economy-wide effects of large-scale renewable electricity expansion in Europe: The role of integration costs

Gabriel Bachner, Karl W. Steininger, Keith Williges and Andreas Tuerk ()

Renewable Energy, 2019, vol. 134, issue C, 1369-1380

Abstract: With the increasing share of renewables in electricity generation in Europe, implied economy-wide macroeconomic feedbacks and spill-over effects to other sectors and actors are of rising importance. We quantify the macroeconomic effects of a large-scale expansion of wind and photovoltaics (PV) in Europe, employing a global multi-regional multi-sectoral computable general equilibrium (CGE) model. We place special emphasis on electricity market integration costs, which have so far been neglected not only in most bottom-up technology comparisons, but also in macroeconomic studies. We find that the societal welfare effects of a large-scale expansion of wind and PV tend to be positive; however, when integration costs are taken into account, positive welfare effects are either much smaller or even become negative, depending very much on regional characteristics, such as the prevailing electricity mix, weighted average costs of capital (WACC) or capacity factors. We also show that macroeconomic feedback effects raise generation costs above what is anticipated from a bottom-up perspective, since the high capital intensities of renewable electricity generation technologies drive up economy-wide capital prices. This may imply that they are no longer competitive when installed at large-scales.

Keywords: VRE expansion; Integration costs; Macroeconomic effects; Wind; Photovoltaics; Computable general equilibrium (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:renene:v:134:y:2019:i:c:p:1369-1380

DOI: 10.1016/j.renene.2018.09.052

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