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Cost of Energy

In: Dynamic Decisions Energy PIVOT, Adaptive Moves, Winning BOUnCE

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  • Ricardo G Barcelona
  • Franz Heukamp

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.

Suggested Citation

  • Ricardo G Barcelona & Franz Heukamp, 2022. "Cost of Energy," World Scientific Book Chapters, in: Dynamic Decisions Energy PIVOT, Adaptive Moves, Winning BOUnCE, chapter 7, pages 359-412, World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9781800611979_0007
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    More about this item

    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;
    All these keywords.

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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