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, 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.

Bibliographic Details

Main Authors:	Lecuyer, Oskar, Vogt-Schilb, Adrien
Language:	English en_US
Published:	World Bank Group, Washington, DC 2014-07
Subjects:	ABATEMENT POTENTIAL, ALLOWABLE CARBON EMISSIONS, ATMOSPHERE, ATMOSPHERIC CARBON, AVAILABILITY, BIOMASS, CARBON, CARBON BUDGET, CARBON BUDGETS, CARBON CAPTURE, CARBON CONTENT, CARBON ECONOMY, CARBON EMISSIONS, CARBON ENERGY, CARBON FOSSIL FUELS, CARBON INTENSITIES, CARBON INTENSITY, CARBON POLICY, CARBON PRICE, CARBON PRICES, CARBON TAX, CARBON TAXES, CARBON TECHNOLOGIES, CARBON-FREE POWER, CLEAN ELECTRICITY, CLEAN POWER, CLEANER ENERGY, CLIMATE, CLIMATE CHANGE, CLIMATE CHANGE MITIGATION, CLIMATE CHANGE POLICIES, CLIMATE CHANGE POLICY, CLIMATE CHANGE RESEARCH, CLIMATE POLICIES, CLIMATE POLICY, CLIMATIC CHANGE, CO2, COAL, COAL GENERATION, COAL PLANTS, COAL POWER PLANTS, COAL PRODUCTION, COAL RESOURCES, COST OF COAL, COST OF ELECTRICITY, CUMULATIVE EMISSIONS, DIFFUSION, ECOLOGICAL ECONOMICS, EFFICIENT USE, ELECTRICITY, ELECTRICITY CONSUMPTION, ELECTRICITY DEMAND, ELECTRICITY PRICE, ELECTRICITY PRICES, ELECTRICITY PRODUCTION, ELECTRICITY SECTOR, EMISSION, EMISSION ABATEMENT, EMISSION ALLOWANCES, EMISSION CONSTRAINT, EMISSION FACTOR, EMISSION PATHWAYS, EMISSION RATE, EMISSION REDUCTION, EMISSION REDUCTIONS, EMISSION TRADING, EMISSIONS, EMISSIONS ABATEMENT, EMISSIONS CUTS, ENERGY CONSUMPTION, ENERGY ECONOMICS, ENERGY OUTLOOK, ENERGY POLICY, ENERGY PRODUCTION, ENERGY RESOURCES, ENERGY SECURITY, ENERGY SOURCES, ENERGY TECHNOLOGIES, ENERGY TECHNOLOGY, ENVIRONMENTAL POLICY, FOSSIL, FOSSIL ENERGY, FOSSIL FUEL, FOSSIL FUEL DEPOSITS, FOSSIL FUEL PRICES, FOSSIL FUEL PRODUCTION, FOSSIL FUELS, FUEL COST, FUEL COSTS, FUEL PRICE, FUEL PRODUCTION, FUEL SWITCHING, GAS, GAS GENERATION, GAS INVESTMENT, GAS PLANT, GAS PLANTS, GAS POWER PLANTS, GAS PRODUCTION, GAS RESERVES, GAS RESOURCES, GHG, GLOBAL WARMING, GREENHOUSE, GREENHOUSE GAS, GREENHOUSE GAS EMISSIONS, INTERNATIONAL ENERGY AGENCY, INVESTMENT IN COAL, IPCC, LONG-TERM CLIMATE CHANGE, LOW-CARBON, MARGINAL ABATEMENT, MARGINAL ABATEMENT COST, METHANE, NATURAL GAS, NATURAL RESOURCES, NONRENEWABLE ENERGY, NONRENEWABLE RESOURCE, NONRENEWABLE RESOURCES, OIL, ONSHORE WIND, PEAK CAPACITY, PEAK OIL, PEAK POWER, PHOTOVOLTAIC POWER, POLLUTION, POWER GENERATION, POWER PLANT, POWER PLANTS, POWER PRODUCTION, POWER SECTOR, PP, PRICE OF ELECTRICITY, RENEWABLE ENERGIES, RENEWABLE ENERGY, RENEWABLE ENERGY SOURCE, RENEWABLE POWER, RENEWABLE SOURCE, RENEWABLE SOURCES, SHADOW PRICE, SUPPLY OF ELECTRICITY, TEMPERATURE, WIND, WINDMILL, WINDMILLS,
Online Access:	http://documents.worldbank.org/curated/en/2014/07/19896708/optimal-transition-coal-gas-renewable-power-under-capacity-constraints-adjustment-costs https://hdl.handle.net/10986/19388
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