Conference Agenda

The energy transition requires unprecedented levels of global clean energy investments specifically in renewable generation capacity and green hydrogen. Investments in emerging markets and developing economies are disproportionally low despite considerable renewable potential. Insufficient investments in regional renewable generation capacity could lead to higher levelized costs of hydrogen (LCOH), impeding the ramp-up of a global hydrogen market. Conventional energy generation costs are characterized partially by fossil fuel prices, variable costs, while renewable energy and green hydrogen costs are instead characterized by prices of plants, electrolysers and infrastructure, investment costs. This links energy generation costs increasingly to the wide range of capital costs between different countries. Contrasting weighted average costs of capital (WACC) can be observed e.g. between the neighboring South American countries of Chile with 3.5 % and Argentina with 13.8 %, leading to diverging cost and profitability estimations for hydrogen projects. [1]

In this paper the influence of regional WACC variations on global hydrogen production is analyzed in a cost minimizing capacity expansion and unit commitment model. WACC estimates are varied with regional aggregation of the global energy system based on a reference geographical allocation. Then the aggregation is performed by allocating countries based on similar WACC, outlining the influence of cost of capital differences more explicit. Contrasting scenarios, aggregating based on renewable generation profiles and based on hydrogen demand, are used as benchmarks. The results show to what extent cost minimizing strategies shift green hydrogen production to regions with low costs of capital and the impact on LCOH.

We propose a model of optimal investment under uncertainty for a wealth-maximising agent who has the option to delay investment in energy efficiency. An extension of the model, where the stochastic energy carrier is switched, e.g. from gas to electricity, is also explored. Exercise boundaries for the optimal stopping problem are estimated numerically for recent case studies of German dwellings. Comparative statics quantify the impact of energy-price uncertainty as well as wealth and income parameters, which have been largely neglected in the literature, on the decision to invest in energy efficiency. An analysis of government policy in this context assesses the effects of carbon taxes, and demonstrates the significant potential for free-riding on energy efficiency subsidies. The effect of increasing correlation between gas and electricity prices on the decision to invest in a heat pump is also explored.

It is common practice to use linear optimization approaches with a single discount rate in energy system modelling. This is also consistent with the standard central planner interpretation of such models. At the same time, it is well known that outcomes of appropriately formulated optimization models may be interpreted as competitive equilibria. Empirical evidence yet suggest that investors face differentiated capital costs (e.g. Steffen ) depending on technology, market and investor characteristics. There have been pragmatic approaches to incorporate such differentiated capital costs into energy system models (e.g. Loulou et al. 2016, Tash et al. 2021, Lonergan et al. 2023). Through a thorough analysis of KKT conditions a theoretically consistent solution may yet be established with succinct and explainable economic features. We illustrate the approach with a stylized application to capacity expansion in Germany.