Non-Renewable and Intermittent Renewable Energy Sources: Friends and Foes?

This paper studies the links between non-renewable and intermittent renewable energy sources in the production of electricity. Using U.S. state-level data from 1998 to 2015, we find that the relationship between the price of natural gas and investments in solar and wind capacity is non-linear and can be represented by an inverted U-shape. Hence, for relatively low natural gas prices, the two modes of production are substitutes. After a price threshold is reached, the two are complementary. A theoretical explanation argues that this stylized fact is the result of a trade-off between two characteristics of these modes of production: the high degree of flexibility of electricity production using natural gas as an input and the low marginal cost of renewable energy sources.

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