Optimal Extraction Paths with Electric Power Generation

Andreas Renz and Christoph Weber ()
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Christoph Weber: Chair for Management Sciences and Energy Economics, University of Duisburg-Essen (Campus Essen)

EWL Working Papers from University of Duisburg-Essen, Chair for Management Science and Energy Economics

Abstract: It would seem that Hotelling's rule and its related models of resource extraction and electricity production as largest consumer of scarce resources are closely related. However, although fixed costs and a non-storable product are essential in characterizing electricity markets, they can hardly be found in respective literature. We show optimal extraction paths when coal, gas and a renewable with differing fixed and variable costs as well as carbon intensities are considered. The technology with lowest fixed costs will then "–" though relying on a scarce resource "–" always be used in perpetuity. The high fixed-cost fossil technology may be exploited at a definite point of time if it is relatively scarce or also used ad infinitum.

Keywords: Scarce resource; Optimal control theory; Hotelling; Valuation; Non-renewable resource; Pollution target; Climate change; Peak-load-pricing (search for similar items in EconPapers)
JEL-codes: C61 L94 Q32 Q48 (search for similar items in EconPapers)
Pages: 24
Date: 2017-07, Revised 2017-07
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:dui:wpaper:1707

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