From fossil fuels to renewables: The role of electricity From fossil fuels to renewables: storage The role of electricity storage Linda Nøstbakken Motivation Stylized facts Linda Nøstbakken Itziar Lazkano Martino Pelli Theory model Norwegian School of U. Wisconsin – Université de Model equilibrium Economics (NHH) Milwaukee Sherbrooke Data Empirical analysis Strategy The Economics of Energy and Climate Change Results Robustness Toulouse, October 2015 Conclusions 1/23
Directed technical change in electricity From fossil fuels to renewables: The role of electricity storage Climate change concerns have led society to seek Linda Nøstbakken alternatives to reduce GHG emissions Electricity production is a main GHG source Motivation Stylized facts 32% of GHG emissions in the US in 2012 (transportation sector responsible for 28%) Theory model Model equilibrium Up 11% from 1990 Data ⇒ Highlights importance of shift from fossil fuels to Empirical analysis renewable sources Strategy Results Robustness Conclusions 2/23
Electricity storage plays important role From fossil fuels to renewables: The role of A major obstacle for increasing the share of renewable electricity storage sources in the grid mix is the intermittency of renewable Linda energy sources – ex: wind, solar Nøstbakken Large scale electricity storage represents a potential Motivation solution Stylized facts Increases the flexibility in meeting demand – produce then Theory model dispatch when needed Model equilibrium Enables the utilization of more of the potential energy Data available from intermittent sources Empirical analysis Strategy Results Robustness Conclusions 3/23
Electricity storage plays important role From fossil fuels to renewables: The role of A major obstacle for increasing the share of renewable electricity storage sources in the grid mix is the intermittency of renewable Linda energy sources – ex: wind, solar Nøstbakken Large scale electricity storage represents a potential Motivation solution Stylized facts Increases the flexibility in meeting demand – produce then Theory model dispatch when needed Model equilibrium Enables the utilization of more of the potential energy Data available from intermittent sources Empirical analysis Electricity storage – a double-edged sword? Strategy Results Creates more arbitrage possibilities for existing power Robustness producers, including nonrenewable producers Conclusions 3/23
Research question From fossil fuels to renewables: The role of electricity storage RQ: Does electricity storage shift the direction of Linda innovation toward renewable energy sources? Nøstbakken What this study does: Motivation Stylized facts Model: Electricity storage endogenously improves the substitutability between renewable and fossil fuel Theory model Model equilibrium technologies Data Empirical analysis to test how and to what extent Empirical innovation in electricity storage affects innovation in analysis renewable and fossil fuel generating technologies Strategy Results Robustness Conclusions 4/23
Storage initiatives From fossil Public and private initiatives to increase electricity storage fuels to renewables: capacity The role of electricity Innovation is key: The cost of energy storage currently a storage big roadblock Linda Nøstbakken IHS CERA: 40 GW of storage capacity will be connected to the grid globally by 2022 Motivation Storage technologies: Compressed air storage, liquid air Stylized facts storage, large batteries, power-to-gas, pumped hydro Theory model Model equilibrium Data Empirical analysis Strategy Results Robustness Conclusions 5/23
Theory model From fossil fuels to renewables: The role of electricity storage Linda Nøstbakken Directed technological change framework Motivation An application to the electricity sector Stylized facts Electricity storage changes substitutability between Theory model renewable and nonrenewable electricity Model equilibrium Data Empirical analysis Strategy Results Robustness Conclusions 6/23
Model assumptions From fossil fuels to renewables: The role of electricity storage One-period model: Linda Nøstbakken 1 Innovation at beginning of period 2 Production with improved technologies at end of period Motivation Stylized facts Individuals: Consume electricity and aggregate outside Theory model good Model equilibrium Firms: Electricity retailers and generators, innovators Data Take all prices and initial technologies as given Empirical analysis Strategy Results Robustness Conclusions 7/23
Endogenous elasticity of substitution From fossil fuels to renewables: The role of electricity The more efficient the storage technology, the higher the storage elasticity of substitution between renewable and Linda Nøstbakken nonrenewable electricity: Motivation ǫ ( A s ) Stylized facts ǫ ( A s ) − 1 ǫ ( A s ) − 1 ǫ ( A s ) − 1 ǫ ( A s ) ǫ ( A s ) Theory model Y = Y + Y c d Model equilibrium Data Empirical where A s is the current efficiency of the storage technology analysis Strategy Innovation improves the storage technology Results Robustness Conclusions 8/23
Innovation From fossil fuels to renewables: Innovation in three technologies: renewable and The role of electricity nonrenewable electricity generation, and storage storage Innovation x j costs 1 2 ψ j x 2 j and yields technical progress: Linda Nøstbakken A j = (1 + x j ) A j 0 , j = c , d , s Motivation Stylized facts Renewable and nonrenewable generation ( c , d ): Theory model Innovation yields more efficient production technologies Model equilibrium ⇒ Lowers cost of electricity generation Data Storage technologies ( s ) Empirical analysis Innovation increases substitutability between renewable Strategy and nonrenewable electricity: Results Robustness Conclusions ǫ ( A s ) = ǫ 0 (1 + x s ) A s 0 9/23
Equilibrium From fossil fuels to renewables: The role of electricity storage Linda 1 End-of-period production problem: Production levels of Nøstbakken renewable and nonrenewable electricity for given Motivation technologies Stylized facts 2 Beginning-of-period innovation problem: Innovation effort Theory model Model equilibrium in renewable generation, nonrenewable generation, and Data storage technologies Empirical analysis Strategy Results Robustness Conclusions 10/23
Innovation in equilibrium From fossil fuels to Innovation in renewable and nonrenewable generation: renewables: The role of electricity � 1 � � A j 0 � ψ j x j P β − ǫ = ǫ − 1 + 1 − ǫ F 1 − ǫ storage ǫ PF , j = c , d j A j Linda Nøstbakken Innovation in storage: Motivation ψ s x s P β − ǫ ǫ � � Stylized facts + F 1 − ǫ ln F c + F 1 − ǫ = ln P PF ǫ − 1 − F ln F d c d ǫ 0 A s 0 Theory model � F c F ǫ �� d ln F c + F ǫ � ǫ c F d ln F d ln F Model equilibrium ǫ + PF + ǫ − 1 Data ǫ − 1 F ǫ c F d + F c F ǫ ( ǫ − 1) 2 d Empirical analysis Strategy Results Highly nonlinear equation system that characterizes Robustness innovation equilibrium: x ∗ c , x ∗ d and x ∗ Conclusions s → Note that ǫ , A j , F , F j are all functions of innovation ( x j ) 11/23
From theory to empirical analysis From fossil fuels to renewables: The role of electricity storage According to the theory model, innovation mainly depends on Linda Nøstbakken the following factors: Motivation The initial state of technologies (knowledge stocks), A j 0 Stylized facts for j = c , d , s Theory model Electricity prices, P Model equilibrium Data Fossil fuel prices, f Empirical analysis Strategy Results Robustness Conclusions 12/23
Unique dataset What data do we need? From fossil fuels to renewables: The role of electricity We build a unique global, firm-level dataset of innovations in storage electricity storage, and clean and dirty generation, with Linda Nøstbakken information on: Motivation 1 Innovations from the global patent database of the OECD Stylized facts ⇒ Select electricity related patents using International Patent Theory model Classification (IPC) codes from the World Intellectual Model equilibrium Property Organization (WIPO) Data 2 Energy prices from the International Energy Agency Empirical analysis 3 Economic data from the Penn World Tables Strategy Results Robustness Conclusions 13/23
Descriptive statistics From fossil fuels to renewables: The role of electricity storage 10000 12,557 firms Linda Nøstbakken 8000 70 countries Patent Count 6000 Motivation Period: 1968-2011 4000 Stylized facts 260,252 patents: 2000 Theory model Model equilibrium Renewable: 129,753 0 1960 1970 1980 1990 2000 2010 Data year Nonrenewable: 116,534 Clean Dirty Empirical Storage: 13,965 Storage analysis Strategy Results Robustness Conclusions 14/23
Innovating firms by country 5,000 From fossil fuels to renewables: The role of electricity storage 4,000 Linda Nøstbakken 3,000 Motivation Firm Count Stylized facts Theory model Model equilibrium 2,000 Data Empirical analysis 1,000 Strategy Results Robustness Conclusions 0 US JP DE FR GB CH CA SE NL IT KR AU AT FI DK BE IL CN NO ES TW RU ZA HU LU BR IE SG NZ CZ IN HR HK BG SA KY GR AE SI CL RO PT MY MX BM BB UA PL CY AR TR TH MU LK GE BZ SK PH PA LT KW KN KE IS IR ID DM CO CM BS 15/23
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