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The diffusion of renewable energy in the power system implies high supply variability. Lacking economically viable storage options, renewable energy integration is possible thanks to the presence of modern mid-merit fossil-based technologies, which act as back-up capacity. This paper discusses the role of modern fossil-based power generation technologies in supporting renewable energy investments. We study the deployment of these two technologies conditional on all other drivers in 26 OECD countries between 1990 and 2013. We show that moving from the first to the third quartile of the distribution of modern fossil technologies is associated with an increase in yearly renewable energy investment of between 6 and 14 kW per thousand people, on average and ceteris paribus. This is a sizeable effect, considering that average yearly renewable capacity addition in our sample are around 12 kW per thousand people. These findings are robust to different econometric specifications, various definitions of modern fossil technologies and are stronger for wind, which is more intermittent and for which the mismatch between supply and demand is more marked. Our analysis points to the substantial indirect costs of renewable energy integration and highlights the complementarity of investments in different generation technologies for a successful decarbonization process.

This paper analyzes the effect of environmental policies on the direction of energy innovation acrosscountries over the period 1990-2012. Our novelty is to use threshold regression models to allow fordiscontinuities in policy effectiveness depending on a country's relative competencies in renewable andfossil fuel technologies. We show that the dynamic incentives of environmental policies become effectivejust above the median level of relative competencies. In this critical second regime, market-based policiesare moderately effective in promoting renewable innovation, while commandand-control policies depressfossil based innovation. Finally, market-based policies are more effective to consolidate a greencomparative advantage in the last regime. We illustrate how our approach can be used for policy design inlaggard countries.

The diffusion of renewable energy in the power system implies high supply variability. Lacking economically viable storage options, renewable energy integration is possible thanks to the presence of modern mid-merit fossil-based technologies, which act as back-up capacity. This paper discusses the role of modern fossil-based power generation technologies in supporting renewable energy investments. We study the deployment of these two technologies conditional on all other drivers in 26 OECD countries between 1990 and 2013. We show that moving from the first to the third quartile of the distribution of modern fossil technologies is associated with an increase in yearly renewable energy investment of between 6 and 14 kW per thousand people, on average and ceteris paribus. This is a sizeable effect, considering that average yearly renewable capacity addition in our sample are around 12 kW per thousand people. These findings are robust to different econometric specifications, various definitions of modern fossil technologies and are stronger for wind, which is more intermittent and for which the mismatch between supply and demand is more marked. Our analysis points to the substantial indirect costs of renewable energy integration and highlights the complementarity of investments in different generation technologies for a successful decarbonization process.

This paper analyzes the effect of environmental policies on the direction of energy innovation acrosscountries over the period 1990-2012. Our novelty is to use threshold regression models to allow fordiscontinuities in policy effectiveness depending on a country's relative competencies in renewable andfossil fuel technologies. We show that the dynamic incentives of environmental policies become effectivejust above the median level of relative competencies. In this critical second regime, market-based policiesare moderately effective in promoting renewable innovation, while commandand-control policies depressfossil based innovation. Finally, market-based policies are more effective to consolidate a greencomparative advantage in the last regime. We illustrate how our approach can be used for policy design inlaggard countries.