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Saving for a Dry Day: Coal, Dams, and the Energy Transition

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  • Michele Fioretti

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Jorge Tamayo

    (Harvard Business School - Harvard University)

Abstract

Renewable generation creates a tradeoff between current and future energy production as generators produce energy by releasing previously stored resources. Studying the Colombian market, we find that diversified firms strategically substitute fossil fuels for hydropower before droughts. This substitution mitigates the surge in market prices due to the lower hydropower capacity available during dry periods. Diversification can increase prices, instead, if it results from mergers steepening a firm's residual demand. Thus, integrating production technologies within firms can smooth the clean-energy transition by offsetting higher prices during scarcity periods if the unaffected technologies help store renewables more than exercise market power.

Suggested Citation

  • Michele Fioretti & Jorge Tamayo, 2021. "Saving for a Dry Day: Coal, Dams, and the Energy Transition," SciencePo Working papers Main hal-03389152, HAL.
    • Handle: RePEc:hal:spmain:hal-03389152
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03389152
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    References listed on IDEAS

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    Cited by:

    1. Yang, Jie & Huang, Yijing & Takeuchi, Kenji, 2022. "Does drought increase carbon emissions? Evidence from Southwestern China," Ecological Economics, Elsevier, vol. 201(C).
    2. Suarez, Carlos, 2022. "Private management and strategic bidding behavior in electricity markets: Evidence from Colombia," Energy Economics, Elsevier, vol. 111(C).

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    More about this item

    Keywords

    Energy transition; Renewables; Hydropower generation; Diversified production technologies; Energy storage; Wholesale electricity markets;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design

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