Economics serving society

Nicolas Astier: “Electricity is central to our fight against climate change”

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Nicolas Astier is a professor at PSE - Paris School of Economics and a researcher at the École Nationale des Ponts et Chaussées ParisTech. His main research area is energy and environmental economics, with a deep interest in the on-going transformation of the electricity industry and the decarbonation of fossil-fuel intensive sectors. He talks about his most recent work in this interview with PSE:

You’re a new arrival to PSE, joining last September as a professor. What are your first impressions?

I owe my appointment to the trust granted by the École des Ponts ParisTech, who recruited me as a researcher at PSE. It’s an extraordinary opportunity! PSE is a highly stimulating environment: here, one can have lively discussions with highly qualified scholars and energetic and motivated students, especially on questions related to the environment. To be located in the heart of Paris is a great plus, too, because it facilitates relationships with public authorities and private firms, providing numerous research opportunities.

When and why did you begin to study the energy transition?

My interest in the energy transition as an area of research emerged at the beginning of my graduate studies. At the end of the 2000s, it was very clear that climate change was going to become one of the major issues of our generation. Fighting against global warming requires a radical transformation of our energy supplies. So, I first got interested in energy from an engineering point of view. Electricity quickly appeared to be central. This form of energy is in fact unavoidable if we are to produce decarbonised energy in large quantities: we can electrify usages relying on fossil fuels and, where that’s not possible, we can use electricity to produce green fuels such as hydrogen.

Scientific research in engineering often consists in optimising existing technologies or searching for breakthrough innovations (1). I was finding it quite unsatisfactory to approach the question of climate change by betting on technological progress, especially since it seems already feasible with existing technologies to reduce significantly our carbon footprint while maintaining a reasonable level of comfort. Achieving this goal mainly hinges on our ability to align the incentives of individuals, governments, and firms so that they make an efficient and fair use of the resources and technologies we have. I thus got interested in better understanding how and why our individual and collective decisions sometimes seem to fail to make us converge towards a sustainable organization of our societies.

While studying the energy transition from an economics perspective, my interest in electricity increased further because it’s a topic that relates to many different fields in economics. For example, my PhD thesis uses concepts and tools from industrial organization, behavioural economics, and public economics. These exists a fascinating and very vast literature on electricity, especially in France, where engineer-economists have made numerous breakthroughs on the topic.

Can you tell us more about your current work on decarbonising electricity production?

In many ways, electricity is the cornerstone of our policies to fight climate change. We’re currently in a situation where, for various reasons, the electricity industry in France and Europe is far from being organised according to textbook fundamental principles. This opens up numerous research opportunities to assess the magnitude of existing inefficiencies, and propose or prioritize ways to improve on the status quo.

In my most recent work (2), which is joint with Ram Rajagopal and Frank Wolak, we focus attention on investments in wind and solar power plants, which represent the most prevalent approach used around the world to decarbonise electricity production. However, these power plants can be built in very different ways: they can consist of very small installations, for example a few solar panels on a rooftop, or of very large ones, such as offshore wind farms. The total cost per unit of electricity produced differs by a factor of two to three between a large utility-scale solar power plant - several hundreds of megawatts - and the solar panels installed on a house rooftop. This difference stems from economies of scale and the possibility of placing large plants in areas with a high resource.

In practice however, global investments in small vs large solar power plants are roughly equal (in dollar terms). Small installations indeed generally benefit from more generous policy support than their utility-scale counterparts. The main argument justifying these public policies is that small installations can be installed very close to end-consumers, thus reducing in the long term our investments in the electricity grid. But then the question arises: do we observe in practice that small wind and solar power plants have the potential to reduce grid costs?

The economics literature on this question is scarce. We answer it by relying exclusively on observed data, in particular the historical consumption of most distribution networks in France: we divide France into over 2,000 spatial units supplied by “distribution substations” (3) for which we observe net hourly consumption. If small power plants connected directly to a distribution network (rather than to the upstream transmission grid) are observed to significantly reduce net consumption during peak hours, they can be expected to induce savings in grid investments in the long term. Unfortunately, our results don’t support this conclusion, which questions the relevance of the public policies that provide a much higher support to small installations relative to utility-scale power plants.

You are also working on mobility, specifically within a current research project. What is the aim of that work?

My work on mobility started over two years ago, in the context of a partnership with Blablacar. Our first project studies travellers’ preferences about the characteristics of medium to long-distance car trips (4). Although most car trips are short everyday-life trips, such as commuting to work, medium and long-distance trips represent a large number of kilometers travelled and might make drivers reluctant to adopt electric vehicles. To reduce the carbon emissions from these trips, we must start by understanding the relative importance of the main characteristics of a trip in explaining travellers’ choices. Working with Blablacar makes it possible to study how travellers value these characteristics - the price of the trip, the value of time, the practicality of meeting points - from their actual choices, rather than from surveys describing a hypothetical situation.

This collaboration with Blablacar is continuing in the context of a much wider project, funded by the ADEME (5). The overall objective of this project is to facilitate medium to long-distance mobility by combining, as efficiently as possible via a digital platform, all the main means of ground transport (bus, train, car). A number of research areas have been identified: understanding and anticipating travellers’ preferences and behaviour, studying theoretically and empirically platform characteristics such as pricing, information provision, or contractual relations with third-party transport providers.

To which extent can digital solutions help travellers in accessing a wide range of options and choosing the one that suits them best? How can the platform pick relevant travel options from the great number of possibilities and help users to browse efficiently through them? The project provides a unique opportunity to explore these questions. And the topic of ground mobility for medium to long distance mobility is increasingly important given our current failure to curb carbon emissions in the transport sector. This research aims at facilitating mobility while encouraging low carbon means of transportation.

(1) A breakthrough innovation is generally a new product or a service that ends up replacing the dominant technology on the market.

(2) Nicolas Astier, Ram Rajagopal, Frank Wolak (2021), “What kinds of distributed generation technologies defer network expansions? Evidence from France”, NBER Working Paper 28822.

(3) A “distribution substation” is a facility hosting transformers, at the interface between the electricity transmission and the distribution grids.

(4) Nicolas Astier, Pierre-François Bouquet, Xavier Lambin (2022), “Riding together: eliciting travelers’ preferences for long-distance carpooling”, Working Paper.

(5) In its call for proposals on “Transport and sustainable mobility”, the ADEME awarded funding to the project “Blablamodes” lead by a consortium composed of Blablacar, PSE, ESSEC and Université Paris Dauphine-PSL.