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Optimal transition from coal to gas and renewable power under capacity constraints and adjustment costs

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  • Lecuyer, Oskar
  • Vogt-Schilb, Adrien

Abstract

This paper studies the optimal transition from existing coal power plants to gas and renewable power under a carbon budget. It solves a model of polluting, exhaustible resources with capacity constraints and adjustment costs (to build coal, gas, and renewable power plants). It finds that optimal investment in renewable energy may start before coal power has been phased out and even before investment in gas has started, because doing so allows for smoothing investment over time and reduces adjustment costs. Gas plants may be used to reduce short-term investment in renewable power and associated costs, but must eventually be phased out to allow room for carbon-free power. One risk for myopic agents comparing gas and renewable investment is thus to overestimate the lifetime of gas plants -- e.g., when computing the levelized cost of electricity -- and be biased against renewable power. These analytical results are quantified with numerical simulations of the European Commission's 2050 energy roadmap.

Suggested Citation

  • Lecuyer, Oskar & Vogt-Schilb, Adrien, 2014. "Optimal transition from coal to gas and renewable power under capacity constraints and adjustment costs," Policy Research Working Paper Series 6985, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6985
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    Cited by:

    1. Bonneuil, N. & Boucekkine, R., 2016. "Optimal transition to renewable energy with threshold of irreversible pollution," European Journal of Operational Research, Elsevier, vol. 248(1), pages 257-262.
    2. World Bank Group, 2018. "Strategic Use of Climate Finance to Maximize Climate Action," World Bank Other Operational Studies 30475, The World Bank.
    3. Kollenbach, Gilbert, 2017. "On the optimal accumulation of renewable energy generation capacity," Journal of Economic Dynamics and Control, Elsevier, vol. 77(C), pages 157-179.
    4. Adrien Vogt-Schilb & Stephane Hallegatte, 2017. "Climate Policies and Nationally Determined Contributions: Reconciling the Needed Ambition with the Political Economy," IDB Publications (Working Papers) 8319, Inter-American Development Bank.
    5. Stephane Hallegatte & Mook Bangalore & Laura Bonzanigo & Marianne Fay & Tamaro Kane & Ulf Narloch & Julie Rozenberg & David Treguer & Adrien Vogt-Schilb, 2016. "Shock Waves," World Bank Publications, The World Bank, number 22787, December.

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    Keywords

    Climate Change Mitigation and Green House Gases; Energy Production and Transportation; Carbon Policy and Trading; Environment and Energy Efficiency; Energy and Environment;

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