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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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    2. Zoya Pourmirza & Seyed Hamid Reza Hosseini & Sara Walker & Damian Giaouris & Philip Taylor, 2022. "The Landscape and Roadmap of the Research and Innovation Infrastructures in Energy: A Review of the Case Study of the UK," Sustainability, MDPI, vol. 14(12), pages 1-24, June.
    3. Peter R. Hartley, 2018. "The Cost of Displacing Fossil Fuels: Some Evidence from Texas," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    4. Alessandro Muscio & Felice Simonelli & Hien Vu, 2023. "Bridging the valley of death in the EU renewable energy sector: Toward a new energy policy," Business Strategy and the Environment, Wiley Blackwell, vol. 32(7), pages 4620-4635, November.
    5. Joelle Noailly & Roger Smeets, 2019. "Do Financing Constraints Matter for the Direction of Technical Change in Energy R&D?," CIES Research Paper series 58-2018, Centre for International Environmental Studies, The Graduate Institute.

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    More about this item

    Keywords

    Energy innovation; energy transition; valley of death;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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