Managing R&D Risk in Renewable Energy: Biofuels vs. Alternate Technologies
2010
Rausser, Gordon | Stevens, Reid | Torani, Kiran
The government’s use of upstream R&D investments and downstream incentives for renewable energy is intended to achieve commercial breakthroughs in biofuels, batteries, fuel cells, hydrogen, solar, and wind energy. The private sector has reacted to these policy instruments with significant increases in renewable energy R&D and commercial investment. As the private sector exposure in renewable energy markets increases, the public sector will increasingly be pulled by special interests in the direction of insuring against the downside risks of clean energy investments. A central question arises in this context: what is the optimal ex-ante allocation of renewable energy public R&D investment in combination with downstream policy instruments across the emerging technologies? From the standpoint of societal welfare, the optimal allocation of such support is fundamentally a problem of ex-ante portfolio analysis under risk and uncertainty. This article presents an ex-ante portfolio analysis of public and private R&D and commercialization risks in renewable energy based on expert elicitation.
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