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Optimal Extraction Paths with Electric Power Generation

Author

Listed:
  • Andreas A. Renz
  • Christoph Weber

    (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen (Campus Essen))

Abstract

It would seem that Hotelling's rule and its related models of resource extraction and electricity production as largest consumer of scarce resources are closely related. However, although fixed costs and a non-storable product are essential in characterizing electricity markets, they can hardly be found in respective literature. We show optimal extraction paths when coal, gas and a renewable with differing fixed and variable costs as well as carbon intensities are considered. The technology with lowest fixed costs will then "–" though relying on a scarce resource "–" always be used in perpetuity. The high fixed-cost fossil technology may be exploited at a definite point of time if it is relatively scarce or also used ad infinitum.

Suggested Citation

  • Andreas A. Renz & Christoph Weber, 2017. "Optimal Extraction Paths with Electric Power Generation," EWL Working Papers 1707, University of Duisburg-Essen, Chair for Management Science and Energy Economics, revised Jul 2017.
    • Handle: RePEc:dui:wpaper:1707
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    More about this item

    Keywords

    Scarce resource; Optimal control theory; Hotelling; Valuation; Non-renewable resource; Pollution target; Climate change; Peak-load-pricing;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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