Optimal Transition from Coal to Gas and Renewable Power under Capacity Constraints and Adjustment Costs
This paper studies the optimal transition from existing coal power plants to gas and renewable power under a carbon budget. It solves a model of polluting, exhaustible resources with capacity constraints and adjustment costs (to build coal, gas, an...
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| Language: | English en_US |
| Published: |
World Bank Group, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2014/07/19896708/optimal-transition-coal-gas-renewable-power-under-capacity-constraints-adjustment-costs http://hdl.handle.net/10986/19388 |
| Summary: | This paper studies the optimal
transition from existing coal power plants to gas and
renewable power under a carbon budget. It solves a model of
polluting, exhaustible resources with capacity constraints
and adjustment costs (to build coal, gas, and renewable
power plants). It finds that optimal investment in renewable
energy may start before coal power has been phased out and
even before investment in gas has started, because doing so
allows for smoothing investment over time and reduces
adjustment costs. Gas plants may be used to reduce
short-term investment in renewable power and associated
costs, but must eventually be phased out to allow room for
carbon-free power. One risk for myopic agents comparing gas
and renewable investment is thus to overestimate the
lifetime of gas plants -- e.g., when computing the levelized
cost of electricity -- and be biased against renewable
power. These analytical results are quantified with
numerical simulations of the European Commission's 2050
energy roadmap. |
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