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The Valley of Death for New Energy Technologies

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  • Peter R. Hartley
  • Kenneth B. Medlock III

Abstract

It is often claimed that a difficulty of raising investment funds prevents promising new energy technologies from attaining commercial viability. We examine this issue using a dynamic intertemporal model of the displacement of fossil fuel energy technologies by non-fossil alternatives. Our model highlights the fact that since capital used to produce energy services from fossil fuels is a sunk cost, it will continue to be used so long as the price of energy covers merely short-run operating costs. Until fossil fuels are abandoned, the price of energy is insufficient to cover even the operating costs of renewable energy production, let alone provide a competitive return on the capital employed. The full long-run costs of renewable energy production are not covered until some time after fossil fuels are abandoned.

Suggested Citation

  • Peter R. Hartley & Kenneth B. Medlock III, 2017. "The Valley of Death for New Energy Technologies," The Energy Journal, , vol. 38(3), pages 33-62, May.
    • Handle: RePEc:sae:enejou:v:38:y:2017:i:3:p:33-62
    DOI: 10.5547/01956574.38.3.phar
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    References listed on IDEAS

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    2. Geoffrey Heal, 1976. "The Relationship Between Price and Extraction Cost for a Resource with a Backstop Technology," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 371-378, Autumn.
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