Abstract: This paper analyzes the effects of an intermittent technology on long-run incentives for investment in non-renewable electricity generation technologies. I find conditions under which supporting an intermittent technology may in fact increase carbon emissions. The variability of load usually determines the long run mix of generating technologies in a competitive electricity market. When there is a significant amount of intermittent production the mix of other generating technologies is determined by the variability of net load (load net of intermittent output). Net load may be more variable than load itself if the intermittent output is not too positively correlated with load. This increase in variability results in a substitution away from baseload generating technologies towards peaking and intermediate technologies. If peaking and intermediate technologies are more carbon intensive than non-renewable “baseload” technologies, this substitution can more than offset the emission benefits derived from the output of the renewable technology.
November 21, 2008
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