Non-renewable and intermittent renewable energy

Non-renewable and intermittent renewable energy / E. Baranès, J. Jacqmin, J.-C. Poudou. FAERE, Feb. 2015, 29 p. (Working Paper ; WP 2015.02)

Authors’s abstract :

This paper studies the links between non-renewable and intermittent renewable energy sources in the production of electricity. We argue that the relationship between the price of natural gas and investments in solar and wind capacity is represented by a bell-shaped curve, as opposed to being linear. Hence, for relatively low natural gas prices, the two modes of production are substitutes. After a price threshold is reached, the two are complementary. A theoretical model explains this as the trade-off resulting from two forces: the input price differential of these two modes of production and the risks related to the unpredictable nature of renewable energy. Using U.S. state-level data from 1998 to 2012, we find that this relationship is robust to various empirical specifications.

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