Do Intermittent Renewables Threaten the Electricity Supply Security?

Abstract

• Subsidized wind and solar power (RES) may deter optimal investment in thermal plants • We estimate if and which conventional power plants are replaced by RES • We find that RES deter investment in gas plants, while coal stays in the market • However, gas plants are still vital to balance RES’ intermittency • Capacity markets may ensure adequate investment in backup capacity Around the globe, intermittent renewable energies in the form of wind and solar power are on the rise. Their subsidization can be seen as a market intervention, which may deter optimal investment. Thus, this study tests the effect of renewable energies on investment in conventional electricity generation technologies. We estimate a dynamic investment model for 14 European economies for the period 2004–2016 and find a non-negligible negative impact of intermittent renewables on investment in peak-load capacity (mainly gas), while base-load (particularly coal) plants are unaffected. However, the production flexibility of gas-fired plants represents a particularly vital function to balance the supply intermittency of wind and solar. Thus, dispatchable conventional power plants are still necessary to back the system under scarcity events, such as unfavorable weather conditions during high electricity demand. Policymakers should be aware of the adverse effects of RES on investment in peak-load plants and may consider a redesign of the current system, for example by introducing capacity markets.