NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Intermittency and the Value of Renewable Energy

Gautam Gowrisankaran, Stanley S. Reynolds, Mario Samano

NBER Working Paper No. 17086
Issued in May 2011
NBER Program(s):   EEE   IO   PR

A key problem with renewable energy is intermittency. This paper develops a method to quantify the social costs of large-scale renewable energy generation. The method is based on a theoretical model of electricity system operations that allows for endogenous choices of generation capacity investment, reserve operations, and demand-side management. We estimate the model using generator characteristics, solar output, electricity demand, and weather forecasts for an electric utility in southeastern Arizona. The estimated welfare loss associated with a 20% solar photovoltaic mandate is 11% higher than the average cost difference between solar generation and natural gas generation. Unforecastable intermittency yields welfare loss equal to 3% of the average cost of solar. Eliminating a mandate provision requiring a minimum percentage of distributed solar generation increases welfare. With a $21/ton social cost of CO2 this mandate is welfare neutral if solar capacity costs decrease by 65%.

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This paper was revised on March 6, 2013

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