Viviana Fanelli

Università degli Studi Foggia (UNIFG)

Title

Investments in Renewable Energy Sources: Structural Changes in the Production and Consumption of Energy

Authors

Rosella Castellano, Roy Cerqueti, Viviana Fanelli, and Carme Frau

Abstract

In this paper we propose a stochastic dynamic optimization model to derive optimal portfolios consisting of a number of power plant technologies given the uncertainty governing the dynamics of fuel prices. The model aims at deriving the optimal fuel mix over a long-term time horizon by including either fossil and renewable fuels. Indeed, based on the commonly accepted evidence regarding the occurrence of wide fluctuations for fossil fuel prices, the use of renewable energy may offer, along with environmental benefits, greater stabilization of electricity costs. We explore the potential for renewable energy to serve as a financial “hedge”, reducing exposure to fuel price risk. Renewable energy generation brings with it the price stability benefits of free-fuel generation from emerging technologies (i.e.: solar, wind, small hydro, and geothermal sources) and, consequently, costs tend to be stable or decreasing over time, compared to fluctuating costs for fossil fuels.