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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