TY - JOUR
T1 - Financial stability at risk due to investing rapidly in renewable energy
AU - Safarzyńska, Karolina
AU - van den Bergh, Jeroen C.J.M.
PY - 2017/9
Y1 - 2017/9
N2 - 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.
AB - 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.
KW - Complexity
KW - Financial stability
KW - Renewable energy
KW - Sustainability transitions
UR - http://www.scopus.com/inward/record.url?scp=85019644834&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85019644834&partnerID=8YFLogxK
U2 - 10.1016/j.enpol.2017.05.042
DO - 10.1016/j.enpol.2017.05.042
M3 - Article
AN - SCOPUS:85019644834
SN - 0301-4215
VL - 108
SP - 12
EP - 20
JO - Energy Policy
JF - Energy Policy
ER -