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The Valley of Death for New Energy Technologies

Author

Listed:
  • Hartley, Peter R.

    (Rice University and University of Western Australia)

  • Medlock, Kenneth B., III

    (Rice University)

Abstract

It is often claimed that scarce financing 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

  • Hartley, Peter R. & Medlock, Kenneth B., III, 2014. "The Valley of Death for New Energy Technologies," Working Papers 14-021, Rice University, Department of Economics.
    • Handle: RePEc:ecl:riceco:14-021
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    File URL: http://economics.rice.edu/rise/working-papers/valley-death-new-energy-technologies
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    1. is not listed on IDEAS
    2. 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.
    3. Gueye, Seynabou & Karanfil, Fatih & Omgba, Luc Désiré, 2025. "Navigating the energy transition in the EU: Renewables, critical raw materials and emerging vulnerabilities," Ecological Economics, Elsevier, vol. 237(C).
    4. Zoya Pourmirza & Seyed Hamid Reza Hosseini & Sara Walker & Damian Giaouris & Philip Taylor, 2022. "The Landscape and Roadmap of the Research and Innovation Infrastructures in Energy: A Review of the Case Study of the UK," Sustainability, MDPI, vol. 14(12), pages 1-24, June.
    5. 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).
    6. Alessandro Muscio & Felice Simonelli & Hien Vu, 2023. "Bridging the valley of death in the EU renewable energy sector: Toward a new energy policy," Business Strategy and the Environment, Wiley Blackwell, vol. 32(7), pages 4620-4635, November.
    7. 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.

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    JEL classification:

    • F0 - International Economics - - General

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