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Optimal Dynamic Management of a Renewable Energy Source under Uncertainty

Bobtcheff, Catherine (2011) Optimal Dynamic Management of a Renewable Energy Source under Uncertainty. Annales d'Économie et de Statistique, vol. 103. pp. 143-174.

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We consider a risk averse social planner who has access to different energy sources to produce electricity; hydroelectricity is produced with a dam and thermal electricity is obtained from an unlimited supply at some exogenous cost. The dam is supplied with a random water flow. The presence of constraints on a minimal and maximal storage capacity makes electricity consumption smoothing possible only when the quantity of water available to the agent lies in a certain range that is determined. Consumption smoothing is possible even when the dam is almost empty thanks to the alternative costly energy source. Moreover, a comparative statics analysis reveals that the marginal propensity to produce hydroelectricity is an increasing function of the cost of the second technology. Therefore, the availability of the fossil source at a low cost improves time diversification. Finally, the optimal electric park is composed of a number of dams that increases with the cost of the alternative technology.

Item Type: Article
Language: English
Date: December 2011
Refereed: Yes
Uncontrolled Keywords: Intertemporal Expected Utility Maximization, Hydroelectricity, Thermal Power, Investment Under Uncertainty, Prudence
JEL Classification: C61 - Optimization Techniques; Programming Models; Dynamic Analysis
Q25 - Water
Q42 - Alternative Energy Sources
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 09 Jul 2014 17:18
Last Modified: 07 Jul 2020 08:28
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