TRANSrisk Working Documents, Issue 4: "Optimal RES differentiation under technological uncertainty", December 2017

The 4^th issue of TRANSrisk Working Documents entitled "Optimal RES differentiation under technological uncertainty" has been published.

The issue is co-authored by Jakub Sawulski and Jan Witajewski-Baltvilks from Institute for Structural Research (IBS), and explores whether Renewable Energy Sources (RES) auction systems support development of a wide range of different technologies or instead focus on supporting a select few. At first the study reviews some of the approaches to RES technologies differentiation in relation to RES auction designs, and subsequently applies an analytical model to examine the optimal differentiation of RES technologies when the future costs of RES installations are subject to uncertainty. More particularly, uncertainty is allowed to influence the cost function in two ways: (i) as an uncertain magnitude of the learning-by-doing effect and (ii) as a possibility for an exogenous random technological shock (such as an unexpected technological breakthrough).

The study concludes that countries with potentially large learning rate effects - such as those countries at the technological frontier - should increase differentiation, while more peripheral countries should limit differentiation.