Investing in Energy Conversion Technologies - An Optimum Vintage Portfolio Selection Approach

Adriaan van Zon and Sabine Fuss
Additional contact information
Sabine Fuss: MERIT

No 23, Research Memorandum from Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT)

Abstract: The methods by which fuels can be converted into electricity all belong to different “technology families”: the “gas-fired-turbine-family”, the “coal-fired-turbine-family”, etc. Each family consists of different generations of similar technologies, as in a vintage model. Within a family, the latest generation embodies the most recent level and type of knowledge, becoming more and more outdated as new generations arrive. Producers face the problem how to compose their portfolio of families to minimize risk-adjusted costs of investment and production under a given demand constraint. Risk emanates from a number of uncertainties, such as volatile fuel prices and uncertain (prospects of) technological change. The paper presents a model capturing these features by integrating elements from financial Optimum Portfolio Theory (OPT) in a vintage capital investment framework. We find that the cumulative nature of embodied technical change gives rise to investment responses to (changes in) uncertainty that are in between the ‘standard’ results of OPT and Real Option Theory.

Keywords: economics of technology (search for similar items in EconPapers)
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://unu-merit.nl/publications/rmpdf/2005/rm2005-023.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:unm:umamer:2005023

Access Statistics for this paper

More papers in Research Memorandum from Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT) Contact information at EDIRC.
Bibliographic data for series maintained by Leonne Portz ().