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Deep transformations of the energy sector: A model of technology investment choice

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  • Landis, Florian
  • Rausch, Sebastian
Abstract
Economy-energy equilibrium models have emerged as a dominant tool to investigate future pathways taking into account technological aspects, economic behavior, markets, and policy. A challenge for any model is to represent situations which involve large departures from a benchmark mix of energy technologies which would be associated with “deep” transformations of the energy sector (e.g., energy mix with a high penetration of renewables or near-complete decarbonization). This paper proposes a model which differentiates technologies at the level of investments and which is capable of representing large shifts in the market shares of competing technologies that produce a homogeneous energy good (e.g., electricity). We compare the partial equilibrium properties of the proposed technology investment choice model with the standard approach for modeling technology competition based on product differentiation. We also embed both approaches in a numerical general equilibrium multi-sector Ramsey growth framework. We find that the technology investment choice model overcomes some important limitations of the standard approach and is more suited to accommodate large changes in market shares of energy technologies in response to highly stringent energy and climate policy.

Suggested Citation

  • Landis, Florian & Rausch, Sebastian, 2017. "Deep transformations of the energy sector: A model of technology investment choice," Energy Economics, Elsevier, vol. 68(S1), pages 136-147.
    • Handle: RePEc:eee:eneeco:v:68:y:2017:i:s1:p:136-147
    DOI: 10.1016/j.eneco.2018.01.009
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    Cited by:

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    2. Alvarelhão, Ana & Resende, Joana & Carneiro, Anabela, 2024. "Employment and wage dynamics in the electricity sector: Evidence from Portugal 2002–2020," Energy Economics, Elsevier, vol. 130(C).

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    More about this item

    Keywords

    Modeling electricity supply; Technology choice; Investment differentiation; Constant elasticity of transformation; Energy sector transformation;
    All these keywords.

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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