Optimal Dynamic Management of a Renewable Energy Source under Uncertainty

Catherine Bobtcheff

Annals of Economics and Statistics, 2011, issue 103-104, 143-172

Abstract: We consider a risk averse planner who has access to different energy sources to produce electricity; hydroelectricity is produced with a dam and thermal electricity is obtained from an unlimited supply at some exogenous cost. The dam is supplied with a random water ow. The presence of constraints on a minimal and maximal storage capacity makes electricity consumption smoothing possible only when the quantity of water available to the agent lies in a certain range that is determined. Consumption smoothing is possible even when the dam is almost empty thanks to the alternative costly energy source. Moreover, a comparative statics analysis reveals that the marginal propensity to produce hydroelectricity is an increasing function of the cost of the second technology. Therefore, the availability of the fossil source at a low cost improves time diversification. Finally, the optimal electric park is composed of a number of dams that increases with the cost of the alternative technology.

Date: 2011
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Citations: View citations in EconPapers (5)

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Working Paper: Optimal Dynamic Management of a Renewable Energy Source under Uncertainty (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:adr:anecst:y:2011:i:103-104:p:143-172

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