The impact of technical efficiency, innovation, and climate policy on the economic viability of renewable electricity generation

Renewable energy is a promising technology for combating climate change, and state governments are increasingly implementing policies to encourage its adoption. Given these circumstances, it is important to assess the degree to which continued expansion of solar and wind generating capacity is desirable from an economic perspective. Stochastic frontier models of utility-scale renewable generation allow us to extrapolate the net present value of new solar and wind projects for 47 U.S. states (41 wind and 47 solar). Innovation has played a key role in solar and wind expansion with construction costs falling by 64% and 40% since 2013, respectively. Using current construction costs and electricity prices, continued solar expansion is profitable in 79% of states and wind expansion is profitable in 76% of states. Assuming a costless shift to the electricity generation frontier for renewables increases solar and wind viability to 87% and 90% of states, respectively. Finally, the outlook for solar and wind further improves under a first-best carbon tax that renders solar economically viable in 94% of states and wind viable in 93% of states. These findings are empirically robust to numerous stochastic frontier specifications and other sensitivity analyses.