In both cases there should be an impact of the share of renewable sources on the volume of trade in electric current in a gravity equation estimate. If, however, periods of shortages of electricity supply are dominant, a higher share of renewables should lead to more imports and less exports of electricity. If peaks in electricity production are most important in the yearly average of electricity production then a higher share of electricity from renewables should lead to more exports and less imports. 3įor both uncertainty questions it is important to get to know what the impact of renewables on exports and imports of electric currents is. However, the stability of prices and income may be relevant because concerns regarding stability of prices and revenues may be the reasons why some countries block electricity inflows at the borders.
2 In contrast, emphasis was put on supply security through dampening of supply fluctuations. This question of the impact of renewables on prices and income under uncertainty has been widely ignored in the debate on the transition to renewable energy. Those who get less insurance under trade are interested in curtailing trade temporarily for the length of the shock effect. In contrast, in case of a positive shock the country with more renewables has a lower price and undermines the insurance of the other countries. In particular, the country with more renewables has the higher price under negative shocks and gets undermined by the prices of other countries with less renewables. 1 In the case of interest in this paper, international trade in electric current, neighbouring countries’ supply shocks are imperfectly positively correlated and therefore international trade could undermine insurance against fluctuations in prices of electricity and revenue of suppliers. If consumers are not worse off, trade is re-distributing against the farmers in the country with reduced insurance. Producers of one country always loose through trade consumer loose if they are highly risk averse only because trade reduces prices and reliefs the burden of insuring farmers.
Therefore with international trade, the country with the lower price undermines the insurance mechanism of the country with the higher price. In this case, the second country has a positive or less negative supply shock decreasing the prices. However, Newbery and Stiglitz ( 1984) show that international trade in the good in question undermines this insurance function if the supply shocks of the countries are not perfectly positively correlated and the otherwise identical economies lack a complete set of risk markets. This describes the insurance function of the market system.
This insures the supplier against a loss of income and spreads the damage over all subjects on the demand side. In simple market models with demand falling and supply increasing with higher prices, a negative shock to the supply function as in a bad harvest increases the price.
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