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Equilibrium Transitions from Non Renewable Energy to Renewable Energy under Capacity Constraints

  • Amigues, Jean-Pierre
  • Ayong Le Kama, Alain
  • Chakravorty, Ujjayant
  • Moreaux, Michel

We study the transition between non-renewable and renewable energy sources with adjustment costs over the production capacity of renewable energy. Assuming constant variable marginal costs for both energy sources, convex adjustment costs and a more expensive renewable energy, we show the following. With sufficiently abundant non-renewable energy endowments, the dynamic equilibrium path is composed of a first time phase of only non-renewable energy use followed by a transition phase substituting progressively renewable energy to non-renewable energy before a last time phase of only renewable energy use. The investment into renewable energy may either begin before actual production of renewable energy or be delayed until the energy price achieves a sufficient gap with respect to the renewable energy cost. With an initially abundant non-renewable resource, the features of the transition between non-renewable and renewable energy do not depend upon the initial resource stock.

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Paper provided by LERNA, University of Toulouse in its series LERNA Working Papers with number 11.07.341.

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Date of creation: Jan 2011
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Handle: RePEc:ler:wpaper:24320
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