Investing in Energy Conversion Technologies - An Optimum Vintage Portfolio Selection Approach

van Zon, Adriaan and Fuss, Sabine (2005). Investing in Energy Conversion Technologies - An Optimum Vintage Portfolio Selection Approach. UNU-MERIT Research Memoranda. UNU-MERIT.

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  • Sub-type Working paper
    Author van Zon, Adriaan
    Fuss, Sabine
    Title Investing in Energy Conversion Technologies - An Optimum Vintage Portfolio Selection Approach
    Series Title UNU-MERIT Research Memoranda
    Volume/Issue No. 13
    Publication Date 2005
    Place of Publication Maastricht, NL
    Publisher UNU-MERIT
    Pages 31
    Language eng
    Abstract The methods by which fuels can be converted into electricity all belong to different 'technology families': the 'gas-fired-turbine-family', the 'coal-fired-turbine-family', etc. Each family consists of different generations of similar technologies, as in a vintage model. Within a family, the latest generation embodies the most recent level and type of knowledge, becoming more and more outdated as new generations arrive. Producers face the problem how to compose their portfolio of families to minimize risk-adjusted costs of investment and production under a given demand constraint. Risk emanates from a number of uncertainties, such as volatile fuel prices and uncertain (prospects of) technological change. The paper presents a model capturing these features by integrating elements from financial Optimum Portfolio Theory (OPT) in a vintage capital investment framework. We find that the cumulative nature of embodied technical change gives rise to investment responses to (changes in) uncertainty that are in between the 'standard' results of OPT and Real Option Theory.
    Copyright Holder n/a
    Copyright Year 2005
    Copyright type All rights reserved
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    Created: Fri, 13 Dec 2013, 12:39:22 JST