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Inter-temporal R&D and capital investment portfolios for the electricity industry’s low carbon future

Nidhi R. Santen, Mort D. Webster, David Popp, and Ignacio Pérez-Arriaga

Year: 2017
Volume: Volume 38
Number: Number 6
DOI: https://doi.org/10.5547/01956574.38.6.nsan
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A pressing question facing policy makers today in developing a long-term strategy to manage carbon emissions from the electric power sector is how to appropriately balance investment in R&D for driving innovation in emerging low-and zero-carbon technologies with investment in commercially available technologies for meeting existing energy needs. Likewise, policy makers need to determine how to allocate limited funding across multiple technologies. Unfortunately, existing modeling tools to study these questions lack a realistic representation of electric power system operations, the innovation process, or both. In this paper, we present a new modeling framework for long-term R&D and electricity generation capacity planning that combines an economic representation of endogenous non-linear technical change with a detailed representation of the power system. The model captures the complementary nature of technologies in the power sector; physical integration constraints of the system; and the opportunity to build new knowledge capital as a non-linear function of R&D and accumulated knowledge, reflective of the diminishing marginal returns to research inherent in the energy innovation process. Through a series of numerical experiments and sensitivity analyses - with and without carbon policy - we show how using frameworks that do not incorporate these features can over-or under-estimate the value of different emerging technologies, and potentially misrepresent the cost-effectiveness of R&D opportunities.

Avoiding Pitfalls in China’s Electricity Sector Reforms

Michael R. Davidson and Ignacio Pérez-Arriaga

Year: 2020
Volume: Volume 41
Number: Number 3
DOI: 10.5547/01956574.41.3.mdav
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China has recently reinvigorated reforms to its electricity sector, focusing on increasing the role of markets and improving regulation. While restructuring an electricity sector is difficult and can require years of detailed planning, China's approach relies upon broad central guidelines with many details and initiatives left to provincial governments. We assess the current state of reform efforts through the lens of five "pitfalls" based on well-established regulatory economics literature and international lessons, focusing on contract structure, system operation, and regulation. We find that while market efforts are likely to achieve efficiency gains with respect to the planned system, they may fall short of crucial functions of a market, such as incentivizing flexibility given increasing renewable energy penetrations. Making markets work will likely require a stronger centralization of market design and regulatory oversight authorities.

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