Journal
OXFORD REVIEW OF ECONOMIC POLICY
Volume 35, Issue 2, Pages 183-196Publisher
OXFORD UNIV PRESS
DOI: 10.1093/oxrep/grz005
Keywords
electricity markets; climate change; fossil fuels; intermittency; capacity markets
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The age of electricity is coming, driven by rapid technological change. On the demand side, the digitalization of many processes is leading to technologies that require electricity, rather than liquid or solid fuels. On the supply side, renewable energy technologies provide electricity directly, at falling cost. Electrification, directly and indirectly (e.g. using electricity to produce hydrogen fuel) can aid the decarbonization of the economy; strong climate policy would accelerate electrification. The big question is when, not if, and the transition is not occurring anywhere near fast enough to meet the Paris climate goals. The immediate impact of the coming age of electricity is the transformation of electricity markets, which need to adapt to near zero marginal costs and intermittency. In the longer term, the impact on fossil fuels will be radical. Fossil fuel prices will fall with demand, and the oil and gas majors will either completely transform themselves or will harvest profits and exit.
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