Perfect So Far? Substitutability Between Wind & Solar and Dirty Electricity Generation

Abstract

Wind and solar are driving the clean transition in electricity: this paper uses panel data to investigate how these technologies substitute with dirty (fossil fuel) electricity generation. Production functions with a constant and a variable elasticity of substitution are estimated. Results suggest a higher elasticity of substitution than previous estimates, aligning with long-run analysis from electricity dispatch models and assumptions often made in economic models. Little evidence is found of the elasticity decreasing so far. However, the uptake of wind and solar decreases the utilisation rates of dirty capital.