Policies supporting investment in renewable electricity have been a cornerstone of climate policy in many parts of the world. While previous empirical work explores the economic and environmental impacts of renewable production, the focus has exclusively been on the short-run impacts of expanding renewable supply. We shed light on the longer run impacts of renewable expansions. Focusing on the California’s electricity market, we estimate how wholesale electricity prices have responded to a dramatic increase in utility-scale solar capacity. While a substantial decline in daily average prices can be attributed to the solar capacity expansion, this average price impact masks a substantial decrease in mid-day prices combined with an increase in shoulder hour prices. These results imply that short-term power markets are responding to the renewable expansion in a fashion that could sustain more flexible conventional generation, while seriously undermining the economic viability of traditional baseload generation technologies.
James Bushnell is a professor in the Department of Economics at the University of California, Davis, and a Research Associate of the National Bureau of Economic Research. Prior to joining UC Davis, he spent 15 years as the Research Director of the University of California Energy Institute in Berkeley, and two years as the Cargill Chair in Energy Economics at Iowa State University. Professor Bushnell has long been actively involved in energy and environmental policy. Since 2002, he has served as a member of the Market Surveillance Committee (MSC) of the California Independent System Operator (CAISO). He has also advised the California Air Resources Board on emissions trading and other climate policies.