Journal of Energy Markets

Risk.net

Reciprocal energy-switching options

Roger Adkins, Dean Paxson

ABSTRACT

Many energy source switching opportunities - such as using palm or rape oil in biodiesel production, or using bio, coal, gas, hydro, nuclear or wind in electricity generation - are reciprocal energy-switching options.We provide a quasianalytical solution for a general switching model for two alternative energy inputs with fixed switching costs. We also consider easier analytical solutions for a single switching opportunity that are appropriate for national decisions regarding energy capacity (nuclear or natural gas) and for perpetual energy alternatives with variable switching costs. We provide illustrations and a sensitivity analysis for these models, along with comments on the computational ease of proposed solutions and suggestions for model extensions.

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