Lock-in in Renewable Energy Generation under Constraining Capacities and Heterogenous Conversion Performances

Abstract

The theme of the ’energy transition’ away from fossil fuels toward clean renewable energy has attracted a lot of attention in the context of climate change mitigation. However the emergence of a new energy system raises its own problems. An aggressive carbon pricing or a renewables subsidisation policy can result in fast investment in poor performing energy conversion capacities. Once installed the industry will remain locked-in in these inferior technical options especially if capital investments are submitted to adjust-ment costs. With the help of a stylized fully dynamic model, we show the following. Without an access cost to primary energy (e.g. solar radiation) the industry can run more performing equipments even if they are both more costly to operate and more costly to build provided a suÿciently strong en-ergy demand. With this preliminary result in hands we assume next convex access costs to primary energy, due for example to limited space access con-straints. The high performing energy conversion technique has now a produc-tivity advantage. However for a small energy demand it can remain optimal for the industry to first deploy high performance equipments together with low performing ones before dismantling their stock of high performing equip-ments. Despite the increase of the marginal access cost to primary energy coming alongside the deployment of production capacities, thus inducing a fall of the cost gap between the two technologies, the capital price of the high performing equipments can fall down to zero before the capital price of low performing ones because of the building costs gap, implying that the industry should scrap in the end its high performing equipments while still investing in low cost (and low performing) ones. This ’transition inside the transition’ problem provides also interesting insights concerning the regulation of the energy transition towards renewable energy. It suggests that avoiding lock-in in renewable energy provision is more a matter of speed of increase of the carbon price than just the fixation of its level at any moment.

Keywords

Reference

Michel Moreaux, and Jean-Pierre Amigues, “Lock-in in Renewable Energy Generation under Constraining Capacities and Heterogenous Conversion Performances”, TSE Working Paper, n. 25-1638, April 2025.