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Optimal Dynamic Management of a Renewable Energy Source under Uncertainty

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  • Catherine Bobtcheff

Abstract

We consider a risk averse planner who has access to different energy sources to produce electricity; hydroelectricity is produced with a dam and thermal electricity is obtained from an unlimited supply at some exogenous cost. The dam is supplied with a random water ow. The presence of constraints on a minimal and maximal storage capacity makes electricity consumption smoothing possible only when the quantity of water available to the agent lies in a certain range that is determined. Consumption smoothing is possible even when the dam is almost empty thanks to the alternative costly energy source. Moreover, a comparative statics analysis reveals that the marginal propensity to produce hydroelectricity is an increasing function of the cost of the second technology. Therefore, the availability of the fossil source at a low cost improves time diversification. Finally, the optimal electric park is composed of a number of dams that increases with the cost of the alternative technology.

Suggested Citation

  • Catherine Bobtcheff, 2011. "Optimal Dynamic Management of a Renewable Energy Source under Uncertainty," Annals of Economics and Statistics, GENES, issue 103-104, pages 143-172.
    • Handle: RePEc:adr:anecst:y:2011:i:103-104:p:143-172
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    File URL: http://www.jstor.org/stable/41615497
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    Cited by:

    1. Robles, Jack, 2016. "Infinite horizon hydroelectricity games," Working Paper Series 19421, Victoria University of Wellington, School of Economics and Finance.
    2. Durmaz, Tunç, 2016. "Precautionary Storage in Electricity Markets," Discussion Papers 2016/5, Norwegian School of Economics, Department of Business and Management Science.
    3. Tunç Durmaz, 2018. "Energy Storage and Renewable Energy: An Economic Approach," Yildiz Social Science Review, Yildiz Technical University, vol. 4(1), pages 15-38.
    4. Robles, Jack, 2016. "Infinite horizon hydroelectricity games," Working Paper Series 5075, Victoria University of Wellington, School of Economics and Finance.

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