Financial stability at risk due to investing rapidly in renewable energy
Authored by Karolina Safarzynska, den Bergh Jeroen C J M van
Date Published: 2017
DOI: 10.1016/j.enpol.2017.05.042
Sponsors:
Polish National Science Center
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Abstract
We present novel insights about effective energy policies using an
agent-based model. The model describes relevant feedback mechanisms
between technological evolution, the interbank market and the
electricity sector. Analysis with it shows that energy policies affect
interbank connectivity and hence the likelihood of cascades of bank
failures. This effect has not been studied before in the literature. In
particular, we find that investments in renewable energy reduce
interbank connectivity, increasing the probability of bank failures,
while raising taxes on energy has an opposite effect. Increasing the
share of renewable energy in electricity production initially increases
the price of electricity, and thus improves profits and the ability to
re-pay debts of incumbent power plants. However, when the share of
renewable energy increases too quickly, financial stability may be at
stake as the burden of financing investments in renewable energy offsets
the improved profitability of existing power stations. All in all, this
study provides a unique and novel perspective on the relationship
between renewable energy investments and financial stability.
Tags
Complexity
Sustainability
Financial Stability
Policy
Model
renewable energy
growth
technology
Electricity
Crisis
Sustainability
transitions