Electricity shortages and firm energy transition: Implications for futures with higher penetrations of variable renewable energy

Abstract

With the growing global shift towards low-carbon energy transition and the more frequent occurrence of electricity shortages, the effect of these shortages on energy transition has become a major area of concern. This study uses a prefecture-level electricity shortage index based on city daily newspaper data, combined with firm energy consumption data from the Chinese Tax Survey Database (CTSD), to analyze the impact of electricity shortages on firm energy transition in China. The study finds that electricity shortages are a significant barrier to firm energy transition. For each standard deviation increase in urban electricity shortage, there is a 0.21% increase in the proportion of fossil energy consumption by firms. This obstacle is more severe for large and medium-sized firms, older firms and non-state-owned enterprises. Further analysis shows that electricity shortages primarily hinder firms’ energy transition through two mechanisms: the direct effect of increasing coal consumption and the indirect effect of reducing firms’ R&D investment. Notably, it is the unplanned electricity shortages that predominantly hinder firm energy transition.