Cost of Energy

Ricardo G Barcelona and Franz Heukamp

Chapter 7 in Dynamic Decisions:Energy PIVOT, Adaptive Moves, Winning BOUnCE, 2022, pp 359-412 from World Scientific Publishing Co. Pte. Ltd.

Abstract: “Costs” of energy are ubiquitous but could benefit from greater coherence in their economic and financial definitions. The various notions of “costs,” how they differ, and how they could be reconciled are examined. Evaluated at a granular level, cost structures provide insights into how endogenous or exogenous cost factors are altered by managerial or policy actions and their limitation as a static measure. To its credit, lifecycle cost of energy (LCOE) provides a structured framework that facilitates the identification of the principal sources of variations. These insights help to reframe subsidies to partially resolve the green paradox, to explicitly estimate the cost of CO2 reduction via supply substitutions, and to build the basis to value the trade-offs of deferring or accelerating investments. Upon gaining this clarity, managers may formulate differentiated, but inter-related, strategies under a portfolio of supplies to meet business viability conditions.

Keywords: Energy; Energy Investments; Option Games; Real Options; Climate Finance; Sustainable Investment; Dynamic Decisions; Decision Uncertainties; Renewable Energy; Fossil Fuel; Carbon Tax; Energy Transition; Behavioural Economics; Political Economy; Financial Economics; Strategy and Competition (search for similar items in EconPapers)
JEL-codes: C58 G3 G30 O13 P48 Q43 Q5 (search for similar items in EconPapers)
Date: 2022
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