Sixteenth International Conference on New Directions in the Humanities

Abstract

In this research, a theoretical model is constructed that is calibrated on data from Ghana. To tackle the issue of the optimal energy mix for electricity generation with irreversible decisions under energy source-specific uncertainty, an integrated, interdisciplinary approach is used including technical and scientific characterisation of each energy source. The future characteristics of energy sources is considered since decisions need to be taken in advance and also because infrastructure decisions are long-term in nature. Special attention is paid to uncertainty surrounding each energy source and in particular intermittency of renewables. First, a portfolio approach is employed to determine the optimal mix of given electricity generation. Results show that the optimal portfolio favours renewables over fossil fuels. Second, real options analysis (Dixit and Pindyck, 1994) are applied to determine the optimal time to adopt the new mix. It is suggested that, knowing the current and the optimal mixes, it is best to immediately switch from the former to the latter.