The Economics of Decarbonizing Electricity Production
Introduction
Economists play a crucial role in advising on the energy transition by designing policy instruments to promote low-carbon energy options. However, they are increasingly tasked with determining which energy sources will be used in a low-carbon world. Decarbonizing electricity is a key aspect of this transition, as electricity production accounts for a significant portion of global emissions.
The Electricity Mix
- Historical Trends: The share of renewable energy has been growing, particularly in regions with favorable conditions for solar and wind power.
- Model Projections: Models predict that the share of renewable energy, primarily solar and wind power, will increase steadily. By 2050, renewable energy is expected to dominate the electricity mix.
- Regional Variation: Different regions have varying potential for different types of renewable energy sources.
- Development Over Time: The transition towards renewable energy is expected to be gradual, with significant increases in the coming decades.
- 100% Renewable Electricity: While technically possible, achieving 100% renewable electricity faces challenges such as intermittency and the need for complementary flexibility options.
Types of Low-Carbon Electricity Production
- Solar and Wind Energy: These are currently the most cost-effective sources of electricity, with costs continuing to decline.
- Hydropower and Geothermal Energy: These sources are reliable but have limited potential in certain regions.
- Carbon Capture and Storage (CCS): CCS can help mitigate emissions from fossil fuel-based power plants.
- Biofuels: These can provide flexibility but may compete with food production.
- Nuclear Energy: Nuclear energy offers a stable and low-emission source but faces challenges related to safety and waste disposal.
- Nuclear Fusion: While promising, nuclear fusion is still in the experimental stage and not yet commercially viable.
The Role of Cost
- Relative Cost of Energy Sources: Solar and wind energy are generally cheaper than other forms of renewable energy, with costs continuing to decrease.
- Cost of Energy Systems: The overall cost of transitioning to a low-carbon electricity system includes the cost of infrastructure and storage solutions.
Flexibility Options
- Supply Flexibility: Ensuring a steady supply of electricity through various means such as demand response programs and smart grids.
- Grid Extension: Expanding the electrical grid to accommodate more renewable energy sources.
- Demand Flexibility: Adjusting electricity usage patterns to match supply.
- Energy Storage: Utilizing batteries and other storage technologies to balance supply and demand.
Conclusion
The optimal strategy for decarbonizing electricity involves a combination of cost-effective renewable energy sources and complementary flexibility options. While solar and wind energy are currently the most competitive, the transition requires significant investments in infrastructure and storage solutions. Models project that renewable energy will become the dominant source of electricity by 2050, driven by ongoing technological advancements and decreasing costs.
References
- IRENA (2023)
- Way, et al. (2022)
Appendix: Background Information
Detailed background information on integrated assessment models (IAMs) and their application in projecting future electricity systems.