Enrich et al 2024b - Revision history

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Cserra at 18:52, 31 October 2024

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 KAFFINE, D. T., MCBEE, B. J., and ERICSON, S. J. (2020) “Intermittency and co2 reductions from wind energy” The Energy Journal, 41(5).
-KAFFINE, D. T., MCBEE, B. J., and LIESKOVSKY, J. (2013) “Emissions savings from wind power generation in Texas” Energy Journal, 34(1), 155 - 175.
+KAFFINE, D. T., MCBEE, B. J., and LIESKOVSKY, J. (2013) “Emissions savings from wind power generation in Texas” Energy Journal, 34(1), 155-175.
 KETTERER, J. C. (2014). “The impact of wind power generation on the electricity price in Germany” Energy economics, 44, 270–280.

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 MACIEJOWSKA, K. (2020) “Assessing the impact of renewable energy sources on the electricity price level and variability–a quantile regression approach” Energy Economics, 85, 104532.
-MARTÍNEZ, M. I., ROSA, S., CASTRO, B., DE CABO, G., and RODRÍGUEZ, A. (2023) “El empleo de las mujeres en la transición energética justa en España” Fundación Naturgy e Instituto para la Transición Justa. Madrid..
+MARTÍNEZ, M. I., ROSA, S., CASTRO, B., DE CABO, G., and RODRÍGUEZ, A. (2023) “El empleo de las mujeres en la transición energética justa en España” Fundación Naturgy e Instituto para la Transición Justa. Madrid.
 MYOJO, S., and OHASHI, H. (2018) “Effects of consumer subsidies for renewable energy on industry growth and social welfare: The case of solar photovoltaic systems in Japan” Journal of the Japanese and International Economies, 48, 55–67.
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 SILER-EVANS, K., AZEVEDO, I. L., and MORGAN, M. G. (2012) “Marginal emissions factors for the U.S. electricity system” Environmental Science and Technology, 46(9), 4742-4748.
-WOO, C., HOROWITZ, I., MOORE, J., and PACHECO, A. (2011) “The impact of wind generation on the electricity spot-market price level and variance: The Texas experience” Energy Policy, 39, 3939 - 3944.
+WOO, C., HOROWITZ, I., MOORE, J., and PACHECO, A. (2011) “The impact of wind generation on the electricity spot-market price level and variance: The Texas experience” Energy Policy, 39, 3939-3944.

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 Studies in electricity markets of different countries have documented reductions in wholesale electricity prices due to increases in renewable energy production (Bushnell and Novan, 2021; Gelabert, Labandeira, and Linares, 2011; Ketterer, 2014; Maciejowska, 2020; Woo et al., 2011). In marginal pricing systems, power plants with different production costs offer electricity until demand is met. At the point where the market clears, the price is set by the last plant dispatching electricity and paid to all producers. As energy offers are ranked according to their offered price, the expansion of renewable energies, with marginal costs close to zero, displaces plants typically based on fossil fuels, leading to an overall reduction in electricity prices known as the merit-order effect (Sensfuß, Ragwitz, and Genoese, 2008).
-In the Iberian market, the deployment of wind and solar energy has also led to substantial reductions in electricity prices. Figure 6 presents the results of estimating Equation 1 on hourly wholesale electricity prices from 2016 to 2022. These results indicate that each additional GWh of wind generation reduces wholesale electricity prices by 2e/MWh (Figure 6a). This effect, which has remained relatively stable over the last years, increased substantially during the 2021-2022 gas crisis. The rise in electricity prices, primarily driven by higher gas prices, resulted in greater reductions in wholesale electricity prices when gas-based power plants were displaced by wind power. During the crisis, each additional GWh of wind generation lowered wholesale prices by 5 to 6e/MWh.
+In the Iberian market, the deployment of wind and solar energy has also led to substantial reductions in electricity prices. Figure 6 presents the results of estimating Equation 1 on hourly wholesale electricity prices from 2016 to 2022. These results indicate that each additional GWh of wind generation reduces wholesale electricity prices by 2€/MWh (Figure 6a). This effect, which has remained relatively stable over the last years, increased substantially during the 2021-2022 gas crisis. The rise in electricity prices, primarily driven by higher gas prices, resulted in greater reductions in wholesale electricity prices when gas-based power plants were displaced by wind power. During the crisis, each additional GWh of wind generation lowered wholesale prices by 5 to 6€/MWh.
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-Solar generation also has a significant impact on electricity prices. Figure 6b shows that each additional GWh of solar power reduces wholesale prices by 4e/MWh. This price reduction was even more pronounced before the gas crisis. Since solar energy is primarily generated during daytime hours, it typically enters the electricity mix when prices have historically been higher. As the electricity mix shifts, periods where the lowest prices occur during daytime hours have become more common, attenuating the marginal impact of solar energy on prices that are already close to minimum levels.
+Solar generation also has a significant impact on electricity prices. Figure 6b shows that each additional GWh of solar power reduces wholesale prices by 4€/MWh. This price reduction was even more pronounced before the gas crisis. Since solar energy is primarily generated during daytime hours, it typically enters the electricity mix when prices have historically been higher. As the electricity mix shifts, periods where the lowest prices occur during daytime hours have become more common, attenuating the marginal impact of solar energy on prices that are already close to minimum levels.
 Other studies looking at the impact of renewable energy expansion on energy prices in markets like Spain and California have found similar effects. Bushnell and Novan (2021) shows that in the California market, growth of solar capacity leads to an overall decline in daily average prices. Although in aggregate terms, solar production has a negative influence on prices, this effect is not uniform across all hours. During daylight hours, solar expansion lowers wholesale prices due to significant reduction in output from natural gas generators and imports. However, prices rise during non-daylight hours, particularly in the early morning and evening. During those hours, ramp up and down cause a shift in the type of gas plants generating energy, from more efficient combined cycle gas turbines to more flexible but higher marginal cost ones (Bushnell and Novan, 2021).

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 To study the financial impact of renewable investment on host municipalities, Serra-Sala (2024) analyzes the evolution of Spanish municipal budgets from 1994 to 2022. By exploiting the temporal and geographical variation in the wind farm deployment, this study shows that wind farm development results in a substantial increase in municipal financial resources, which is mainly used to increase current expenditure and real investments. This increase in revenue, partially driven by an expansion of the tax base, is complemented by revenue generated from capital income, as well as an increase in tax rates targeted at these infrastructures.
-To provide a comprehensive analysis of this impact, Serra-Sala (2024) decomposes the increase in municipal revenue by its different sources and examines its temporal dynamics. The results indicate that, in aggregate, the development of a wind farm leads to an average increase of 343€ in revenue per capita. The magnitude of this effect, representing a 45 percent increase in revenue per capita, has to be evaluated considering that affected municipalities tend to be small and thus have very limited budgets. When examining the temporal dynamics of this effect, the study shows that the increase in revenue is driven by larger revenue from indirect taxes during the construction phase (i.e. the construction tax), and a sustained increase in capital income and direct taxes once the facility starts operating.
+To provide a comprehensive analysis of this impact, Serra-Sala (2024) decomposes the increase in municipal revenue by its different sources and examines its temporal dynamics. The results indicate that, in aggregate, the development of a wind farm leads to an average increase of 343€ in revenue per capita. The magnitude of this effect, representing a 45% increase in revenue per capita, has to be evaluated considering that affected municipalities tend to be small and thus have very limited budgets. When examining the temporal dynamics of this effect, the study shows that the increase in revenue is driven by larger revenue from indirect taxes during the construction phase (i.e. the construction tax), and a sustained increase in capital income and direct taxes once the facility starts operating.
 While empirical evidence shows that renewable energy infrastructure can generate significant revenue for host municipalities, limited competencies and resources available to effectively invest in public goods may limit the capacity to compensate for negative externalities associated with these facilities. Additionally, as the increase in revenue is concentrated in the municipality where the installation takes place, the lack of benefits extending to the broader area can limit the potential to mitigate local opposition to further renewable investments.

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 To study the financial impact of renewable investment on host municipalities, Serra-Sala (2024) analyzes the evolution of Spanish municipal budgets from 1994 to 2022. By exploiting the temporal and geographical variation in the wind farm deployment, this study shows that wind farm development results in a substantial increase in municipal financial resources, which is mainly used to increase current expenditure and real investments. This increase in revenue, partially driven by an expansion of the tax base, is complemented by revenue generated from capital income, as well as an increase in tax rates targeted at these infrastructures.
-To provide a comprehensive analysis of this impact, Serra-Sala (2024) decomposes the increase in municipal revenue by its different sources and examines its temporal dynamics. The results indicate that, in aggregate, the development of a wind farm leads to an average increase of 343 euros in revenue per capita. The magnitude of this effect, representing a 45 percent increase in revenue per capita, has to be evaluated considering that affected municipalities tend to be small and thus have very limited budgets. When examining the temporal dynamics of this effect, the study shows that the increase in revenue is driven by larger revenue from indirect taxes during the construction phase (i.e. the construction tax), and a sustained increase in capital income and direct taxes once the facility starts operating.
+To provide a comprehensive analysis of this impact, Serra-Sala (2024) decomposes the increase in municipal revenue by its different sources and examines its temporal dynamics. The results indicate that, in aggregate, the development of a wind farm leads to an average increase of 343€ in revenue per capita. The magnitude of this effect, representing a 45 percent increase in revenue per capita, has to be evaluated considering that affected municipalities tend to be small and thus have very limited budgets. When examining the temporal dynamics of this effect, the study shows that the increase in revenue is driven by larger revenue from indirect taxes during the construction phase (i.e. the construction tax), and a sustained increase in capital income and direct taxes once the facility starts operating.
 While empirical evidence shows that renewable energy infrastructure can generate significant revenue for host municipalities, limited competencies and resources available to effectively invest in public goods may limit the capacity to compensate for negative externalities associated with these facilities. Additionally, as the increase in revenue is concentrated in the municipality where the installation takes place, the lack of benefits extending to the broader area can limit the potential to mitigate local opposition to further renewable investments.

← Older revision	Revision as of 18:46, 2 March 2025
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← Older revision	Revision as of 09:45, 18 November 2024
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 One of the most direct effects of renewable energy deployment is its impact on emissions. We show that in the Iberian market, each additional GW of wind or solar generation is estimated to reduce emissions between 200 and 300 tons of CO<sub>2</sub>. However, intermittency in renewable production, specially for wind, can mitigate their potential in reducing emissions. Existing literature documents how, in periods of wind and solar variability, fossil-fuel plants need to increase output to meet demand, partially offsetting reductions in emissions associated to renewable production.
-In addition to impacting emissions, the integration of renewables significantly contributes to reduce electricity prices by displacing of energy sources with higher costs. The Iberian market is no exception. We show that each additional GWh of wind and solar generation reduces wholesale prices by 2e/MWh and 4e/MWh respectively. These price reductions, which become larger as the share of renewable production grows, can lead to the “cannibalization” of these technologies. Although in the Iberian market, hours with prices below 10e/MWh are present 3% of the time, and thus still infrequent, policies promoting an enhanced system flexibility become a cornerstone as renewables continue to expand. Measures targeting demand responses, energy storage, or grid improvements increase system flexibility and help absorb the surplus electricity generated during hours of peak renewable generation and stabilize price fluctuations, secure returns to renewable investments, and reduce dependence on fossil fuels to maintain grid stability.
+In addition to impacting emissions, the integration of renewables significantly contributes to reduce electricity prices by displacing of energy sources with higher costs. The Iberian market is no exception. We show that each additional GWh of wind and solar generation reduces wholesale prices by 2€/MWh and 4€/MWh respectively. These price reductions, which become larger as the share of renewable production grows, can lead to the “cannibalization” of these technologies. Although in the Iberian market, hours with prices below 10e/MWh are present 3% of the time, and thus still infrequent, policies promoting an enhanced system flexibility become a cornerstone as renewables continue to expand. Measures targeting demand responses, energy storage, or grid improvements increase system flexibility and help absorb the surplus electricity generated during hours of peak renewable generation and stabilize price fluctuations, secure returns to renewable investments, and reduce dependence on fossil fuels to maintain grid stability.
 Beyond looking at the impact on prices and emissions, we show that as renewables keep integrating in the Iberian market, the market share of the five largest incumbent firms in the generation sector has fallen from above 60 percent in 2017 to just above 50 percent in 2022. Lower costs associated to wind and solar installations, together with a more distributed nature of these resources, improves market competition by allowing new players to enter the market. In hours of peak solar generation, large incumbent companies, with market shares falling below 50 percent, are no longer the primary market leaders.
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 Although in the generation sector competition keeps increasing, in the retailing sector, concentration remains high, with a combined market share of the incumbent firms around 80%. This larger concentration is partially explained by incumbency advantages from the previously regulated sector and from higher risks associated to price volatility when lacking enough diversification, together with search frictions from households (Enrich et al., 2022). These three effects give substantial advantage to the main incumbents, as vertical integration allows them to diversify across different energy sources, spreading risk and reducing exposure to market volatility. In Spain, these companies still enjoy over 80% of the market share in their territories.
-We complement our analysis by reviewing existing evidence on the local socioeconomic impacts of renewable investments in Spain. Fabra et al. (2024) study the local employment effects of wind and solar projects and show that, each MW of solar capacity installed increases employment in the region by 4.5 jobs per year during the construction phase, and 3.5 jobs per year once the plant becomes operational. In contrast, wind developments, which heavily rely on workers with specialized technical skills, are not found to have a significant effect. On the financial side, Serra-Sala (2024) shows that wind farm development leads to a substantial increase in municipal resources through expansions of the tax base complemented by increased tax pressure on renewable infrastructures, and revenue generated from capital income. These infrastructures, commonly installed in small municipalities with reduced budgets, are found to increase municipal revenue per capita in 343e, a 45% increase relative to pre-development revenue. Yet, positive impacts of renewable development can be limited by a mismatch of skills between the local labor force and the installation needs, as well as by the concentration of municipal revenue in the localities where installation are developed.
+We complement our analysis by reviewing existing evidence on the local socioeconomic impacts of renewable investments in Spain. Fabra et al. (2024) study the local employment effects of wind and solar projects and show that, each MW of solar capacity installed increases employment in the region by 4.5 jobs per year during the construction phase, and 3.5 jobs per year once the plant becomes operational. In contrast, wind developments, which heavily rely on workers with specialized technical skills, are not found to have a significant effect. On the financial side, Serra-Sala (2024) shows that wind farm development leads to a substantial increase in municipal resources through expansions of the tax base complemented by increased tax pressure on renewable infrastructures, and revenue generated from capital income. These infrastructures, commonly installed in small municipalities with reduced budgets, are found to increase municipal revenue per capita in 343€, a 45% increase relative to pre-development revenue. Yet, positive impacts of renewable development can be limited by a mismatch of skills between the local labor force and the installation needs, as well as by the concentration of municipal revenue in the localities where installation are developed.
 In conclusion, we show that large-scale renewable energy deployment offers significant benefits in terms of reduced electricity prices, lower emissions, and enhanced market competition. However, renewable cannibalization, market volatility, and intermittency, present challenges requiring coordinated policies and regulatory responses to sustain the economic viability of renewable investments. Addressing these challenges is essential for sustaining the pace of renewable investments and keep advancing in the transition to a decarbonized grid. From this perspective, policies and further research into regional disparities, storage solutions, and effective market design are crucial to maximizing the socioeconomic and environmental benefits of low-carbon electricity.<br/>

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-<span style="text-align: center; font-size: 75%;"><span id="fn-12"></span>([[#fnc-12|<sup>12</sup>]]) See [https://www.miteco.gob.es/content/dam/miteco/es/energia/files-1/pniec-2023-2030/PNIEC] </span>
+<span style="text-align: center; font-size: 75%;"><span id="fn-12"></span>([[#fnc-12|<sup>12</sup>]]) See [https://www.miteco.gob.es/content/dam/miteco/es/energia/files-1/pniec-2023-2030/PNIEC https://www.miteco.gob.es/content/dam/miteco/es/energia/files-1/pniec-2023-2030/PNIEC] </span>
 ===6.2. Financial impacts of renewable infrastructure on host municipalities===