Investing in Energy Conversion Technologies - An Optimum Vintage Portfolio Selection Approach
AbstractThe methods by which fuels can be converted into electricity all belong to different “technology families”: the “gas-fired-turbine-family”, the “coal-fired-turbine-family”, etc. Each family consists of different generations of similar technologies, as in a vintage model. Within a family, the latest generation embodies the most recent level and type of knowledge, becoming more and more outdated as new generations arrive. Producers face the problem how to compose their portfolio of families to minimize risk-adjusted costs of investment and production under a given demand constraint. Risk emanates from a number of uncertainties, such as volatile fuel prices and uncertain (prospects of) technological change. The paper presents a model capturing these features by integrating elements from financial Optimum Portfolio Theory (OPT) in a vintage capital investment framework. We find that the cumulative nature of embodied technical change gives rise to investment responses to (changes in) uncertainty that are in between the ‘standard’ results of OPT and Real Option Theory.
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Bibliographic InfoPaper provided by Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology in its series Research Memoranda with number 023.
Date of creation: 2005
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Web page: http://www.maastrichtuniversity.nl/web/UMPublications.htm
economics of technology ;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-09-29 (All new papers)
- NEP-ENE-2005-09-29 (Energy Economics)
- NEP-INO-2005-09-29 (Innovation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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