Fossil fuels will be displaced as depletion raises their explicit costs, but may be displaced sooner if they are taxed in order to internalize negative externalities. Currently, wind gen-eration or nuclear power, supplemented by bulk electricity storage, are the most feasible alternatives to fossil fuels for electricity generation. The ERCOT ISO transmission grid in Texas provides a realistic model for examining the costs of replacing fossil fuels by wind generation and storage, and to compare wind power with generation based on nuclear and storage. ERCOT is relatively isolated from neighboring grids, and wind power was almost a quarter of its total generating capacity at the end of 2016. Using the ERCOT example, we also discuss how the long-run conﬁguration of the electricity supply system aﬀects evolution away from a system dominated by natural gas.
|Name||Economics Discussion Papers|