IDEAS home Printed from https://ideas.repec.org/a/aen/journl/ej38-3-hartley.html
   My bibliography  Save this article

The Valley of Death for New Energy Technologies

Author

Listed:
  • Peter R. Hartley
  • Kenneth B. Medlock III

Abstract

It is often claimed that a difficulty of raising investment funds prevents promising new energy technologies from attaining commercial viability. We examine this issue using a dynamic intertemporal model of the displacement of fossil fuel energy technologies by non-fossil alternatives. Our model highlights the fact that since capital used to produce energy services from fossil fuels is a sunk cost, it will continue to be used so long as the price of energy covers merely short-run operating costs. Until fossil fuels are abandoned, the price of energy is insufficient to cover even the operating costs of renewable energy production, let alone provide a competitive return on the capital employed. The full long-run costs of renewable energy production are not covered until some time after fossil fuels are abandoned.

Suggested Citation

  • Peter R. Hartley & Kenneth B. Medlock III, 2017. "The Valley of Death for New Energy Technologies," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
  • Handle: RePEc:aen:journl:ej38-3-hartley
    as

    Download full text from publisher

    File URL: http://www.iaee.org/en/publications/ejarticle.aspx?id=2926
    Download Restriction: Access to full text is restricted to IAEE members and subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Chakravorty, Ujjayant & Roumasset, James & Tse, Kinping, 1997. "Endogenous Substitution among Energy Resources and Global Warming," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1201-1234, December.
    2. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2012. "The Environment and Directed Technical Change," American Economic Review, American Economic Association, vol. 102(1), pages 131-166, February.
    3. Klaassen, Ger & Miketa, Asami & Larsen, Katarina & Sundqvist, Thomas, 2005. "The impact of R&D on innovation for wind energy in Denmark, Germany and the United Kingdom," Ecological Economics, Elsevier, vol. 54(2-3), pages 227-240, August.
    4. Shmuel S. Oren & Stephen G. Powell, 1985. "Optimal Supply of a Depletable Resource with a Backstop Technology: Heal's Theorem Revisited," Operations Research, INFORMS, vol. 33(2), pages 277-292, April.
    5. Weyant, John P., 2011. "Accelerating the development and diffusion of new energy technologies: Beyond the "valley of death"," Energy Economics, Elsevier, vol. 33(4), pages 674-682, July.
    6. Robert M. Solow & Frederic Y. Wan, 1976. "Extraction Costs in the Theory of Exhaustible Resources," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 359-370, Autumn.
    7. Geoffrey Heal, 1976. "The Relationship Between Price and Extraction Cost for a Resource with a Backstop Technology," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 371-378, Autumn.
    8. Anthony J. Venables, 2014. "Depletion and Development: Natural Resource Supply with Endogenous Field Opening," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 1(3), pages 313-336.
    9. Coulomb, L. & Neuhoff, K., 2006. "Learning curves and changing product attributes: the case of wind turbines," Cambridge Working Papers in Economics 0618, Faculty of Economics, University of Cambridge.
    10. Arthur van Benthem & Kenneth Gillingham & James Sweeney, 2008. "Learning-by-Doing and the Optimal Solar Policy in California," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 131-152.
    11. T Randolph Beard & George S Ford & Thomas M Koutsky & Lawrence J Spiwak, 2009. "A Valley of Death in the innovation sequence: an economic investigation," Research Evaluation, Oxford University Press, vol. 18(5), pages 343-356, December.
    12. Grubler, Arnulf & Messner, Sabine, 1998. "Technological change and the timing of mitigation measures," Energy Economics, Elsevier, vol. 20(5-6), pages 495-512, December.
    13. Bürer, Mary Jean & Wüstenhagen, Rolf, 2009. "Which renewable energy policy is a venture capitalist's best friend? Empirical evidence from a survey of international cleantech investors," Energy Policy, Elsevier, vol. 37(12), pages 4997-5006, December.
    14. Anderson, Kent P., 1972. "Optimal growth when the stock of resources is finite and depletable," Journal of Economic Theory, Elsevier, vol. 4(2), pages 256-267, April.
    15. Nikolaos Kouvaritakis & Antonio Soria & Stephane Isoard, 2000. "Modelling energy technology dynamics: methodology for adaptive expectations models with learning by doing and learning by searching," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 14(1/2/3/4), pages 104-115.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Joelle Noailly & Roger Smeets, 2019. "Do Financing Constraints Matter for the Direction of Technical Change in Energy R&D?," CIES Research Paper series 58-2018, Centre for International Environmental Studies, The Graduate Institute.
    2. Peter R. Hartley, 2018. "The Cost of Displacing Fossil Fuels: Some Evidence from Texas," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    3. Grecu, Eugenia & Aceleanu, Mirela Ionela & Albulescu, Claudiu Tiberiu, 2018. "The economic, social and environmental impact of shale gas exploitation in Romania: A cost-benefit analysis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 93(C), pages 691-700.

    More about this item

    JEL classification:

    • F0 - International Economics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aen:journl:ej38-3-hartley. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Williams). General contact details of provider: http://edirc.repec.org/data/iaeeeea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.