Borenstein, Severin “The Private and Public Economics of Renewable Electricity Generation” (December 2011) (Revised 2012) (Revised version published in Journal of Economic Perspectives, 26(1): 67-92, 2012) | WP-221R | Blog
Generating electricity from renewable sources is more expensive than conventional approaches, but reduces pollution externalities. Analyzing the tradeoffs is much more challenging than often presumed, because the value of electricity is extremely dependent on the time and location at which it is produced, which is not very controllable with some renewables, such as wind and solar. Likewise, the pollution benefits from renewable generation depend on what type of generation it displaces, which also depends on time and location. Without incorporating these factors, cost-benefit analyses of alternatives are likely to be misleading. However, other common arguments for subsidizing renewable power – green jobs, energy security and driving down fossil energy prices – are unlikely to substantially alter the analysis. The role of intellectual property spillovers is a strong argument for subsidizing basic science research, but less persuasive as an enhancement to the value of installing current renewable energy technologies.