The Effects of Increasing Reliance on Renewable Energy Sources: the Case of the Industrial Sector in the US

The ongoing changes in the US energy sector display that the role of renewable energy sources, especially wind and solar photovoltaic, is expected to enlarge substantially. In this paper, we investigate the effect of a growing share of renewables in the US electricity generation mix on industrial sectors consumers. It is identified that the proliferation of intermittent wind and solar energy affects wholesale electricity market price formation and leads to power grid vulnerability. Relying on extensive state-level data on the US electric power sector from the U.S. Energy Information Administration, we conduct panel data analysis to estimate the effect on electricity prices and apply a difference-in-difference approach to reveal the impact of renewable energy sources on reliability of electricity supply. We conclude that an increasing share of renewable energy sources in the US power system has a significant positive effect on electricity prices for the industrial sector consumers, while we do not find robust evidence that the spread of renewable energy sources leads to more frequent or long-lasting disruptions in electricity supply This paper is particularly valuable as it analyzes possible consequences for industrial sector firms from the transition to a low-carbon electric power system and also contributes to the ongoing discussion regarding climate change mitigation burden imposed on the real sector of economy.