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.
electricity, renewables, intermittency, storage, feed-in tariff, carbon emissions.;
- D24: Production • Cost • Capital • Capital, Total Factor, and Multifactor Productivity • Capacity
- D61: Allocative Efficiency • Cost–Benefit Analysis
- Q41: Demand and Supply • Prices
- Q42: Alternative Energy Sources
- Q48: Government Policy
Stefan Ambec et Claude Crampes, « Decarbonizing electricity generation with intermittent sources of energy », TSE Working Paper, n° 15-603, septembre 2015, révision mai 2019.
Stefan Ambec et Claude Crampes, « Decarbonizing electricity generation with intermittent sources of energy », Journal of the Association of Environmental and Resource Economists, vol. 6, n° 6, novembre 2019, p. 919–948.
Journal of the Association of Environmental and Resource Economists, vol. 6, n° 6, novembre 2019, p. 919–948