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Do Renewables Drive Coal-Fired Generation Out of Electricity Markets?

  • Zero-Marginal-Cost Market Design (R Sioshansi and S Mousavian, Section Editors)
  • Published:
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Abstract

Purpose of Review

Coal-fired generation is being retired in many regions. Some argue that these retirements are exacerbated by renewable–generation policy supports. Based on these claims, there are suggestions that renewable supports be phased-out or that coal-fired generators receive their own supports. Given the inherent policy implications, we examine the impacts of renewable–energy supports and other market changes (e.g., low natural–gas prices and carbon policy) on generator profitability.

Recent Findings

Renewable–energy policy supports can affect negatively the economics of coal-fired generators. However, empirical analyses in the literature find that the main contributor to declining coal-fired generation is low natural-gas prices. To investigate these findings further, we analyze a case study that is based on Japan’s wholesale electricity market. Through this case study, we examine the relative impacts of renewable–energy and other policy and market changes on the economics of coal-fired generation.

Summary

Renewable–energy policy can impact the financial viability of coal-fired generators. However, natural-gas-price decreases have a much greater impact on the profitability of coal-fired generators than renewables do at current penetration levels.

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Notes

  1. https://www.eia.gov/electricity/data/eia860m/

  2. cf. FERC docket number RM18-1-000 for details of the proposed rule and FERC’s ultimate decision not to make the proposed tariff modifications.

  3. e.g., cf. https://www.tepco.co.jp/forecast/html/area_data-j.html for Tokyo-area data.

  4. https://www.enecho.meti.go.jp/statistics/electric_power/ep002/

  5. https://www.customs.go.jp/toukei/info/index.htm

  6. https://www.enecho.meti.go.jp/committee/council/basic_policy_subcommittee/

  7. The social-cost-of-carbon estimates are reported in 2007 USD/t-CO2. We use United States Consumer Price Index data and the simple-average FY2017 exchange rate to convert the estimates to 2007 JPY/t-CO2.

  8. https://www.enecho.meti.go.jp/committee/council/basic_policy_subcommittee/

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Acknowledgements

The authors thank Antonio J. Conejo (The Ohio State University), Makoto Tanaka (National Graduate Institute for Policy Studies), Andy Philpott (The University of Auckland), and Armin Sorooshian (University of Arizona) for helpful comments and discussions. The first author thanks Tokushu Tokai Paper Co., Ltd. for its financial support of his Ph.D. studies at The Ohio State University.

Funding

This work was supported by National Science Foundation Grant 1808169.

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Authors and Affiliations

  1. Department of Integrated Systems Engineering, The Ohio State University, Baker Systems Engineering Building, 1971 Neil Avenue, Columbus, OH, 43210, USA

    Kenjiro Yagi & Ramteen Sioshansi

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  1. Kenjiro Yagi
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Correspondence to Ramteen Sioshansi.

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Yagi, K., Sioshansi, R. Do Renewables Drive Coal-Fired Generation Out of Electricity Markets?. Curr Sustainable Renewable Energy Rep 8, 222–232 (2021). https://doi.org/10.1007/s40518-021-00189-1

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