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ISE Welcomes Ekundayo Shittu on 11/22/16

Investments in Energy Systems under Uncertainties in Climate Change Policies and Technological Learning

Seminar by Ekundayo Shittu, Assistant Professor

Engineering Management & Systems Engineering, The George Washington University

Tuesday, November 22 from 4:00 – 5:00 pm

210E Baker Systems, 1971 Neil Avenue

When viewed with the lens of developing solution strategies, global climate change is a classic problem of decision making under uncertainty. This presentation highlights the management of responses to climate change specifically as it relates to energy technology investment decisions under two streams of uncertainties. First, we explore the investments of a profit-maximizing firm into a portfolio of energy systems in response to uncertainty in a climate change regulatory policy. We pay close attention to the representation of technological change to investigate how a firm’s optimal investment is influenced by the presence of a set of different technologies, and uncertainty in a carbon tax. We find that the key drivers of the optimal energy technology set are the elasticities of substitution between the different energy sources, and the relative efficacy of research and development (R&D) into energy sources. Second, we extend this analysis by unpacking the role of learning in managing the capacity expansion of existing and emerging energy technologies. Specifically, we address how stochastic learning rates impact capacity investments into a range of electricity generating technologies. Understanding the managerial or strategic response to uncertainty in energy technological learning is particularly important as decision makers face competing energy technology R&D portfolios, dwindling and unstable financial resources, and an imminent climate change policy. With the aid of cost-constrained risk-minimizing inter-temporal optimization model of a reference global energy system, we investigate the effects of uncertainties in technological learning on electricity capacity additions. We find that (1) the willingness to hedge against the inherent risks associated with uncertainty in energy technological learning is positively correlated with the risk premium; (2) near-term or early investments are required in a mix of sustainable energy technological portfolios as a hedge against learning risk. Using data on 1526 energy companies, investor-owned utilities, and government-owned utilities from 1999 to 2010, we combine these two analysis to propose that the effect of external drivers – competitive learning and regulatory policy – on firms’ new technology investments depends on a firm’s existing resource stock. While competing firms’ new technology investments have a stronger effect on incumbents less endowed in the existing technology, regulatory policy pushes incumbents heavily endowed in the existing technology toward environmentally sustainable investments.

This presentation concludes with a peek into future research streams particularly on (1) an innovative agent-based modeling (ABM) framework to evaluate the interconnections among food, energy and water systems, (2) dynamic computable general equilibrium modeling to harness effective insurance decision making strategies in response to natural and climate change induced disasters, and (3) vaccine supply chain logistics in least developed countries.

Keywords: Carbon tax, Energy system; Investments; Learning; Profit-maximization; R&D; Risk; Technological change; Uncertainty.

Professor Ekundayo Shittu conducts basic and applied research that take a systems engineering approach to aid decision making under uncertainty on investments into energy technology portfolios and the economics of climate change response policies. Pivotal to his research is the examination of how key stakeholders deal with climate change risk and uncertainty. He examines ways of integrating formal decision tools and microeconomics to develop climate policies that aid the adoption of emerging energy systems. Current projects include understanding the effects of uncertainty in technological learning on energy capacity additions, investigating how energy firms’ investments are shaped by competitive and regulatory pressures, studying how to adequately value emerging energy systems given the evolution of storage technologies to mitigate intermittency, investigating effective resource use strategies at the nexus of food, water and energy systems, and studying the platforms for an effective and efficient disaster response system. He was a Lead Author on Chapter 2, “Integrated Assessment of Risk and Uncertainty of Climate Change Response Policies,” fifth Assessment Report (AR5) of the Intergovernmental Panel on Climate Change (IPCC). He is a reviewer for IEEE Transactions on Engineering Management, European Journal of Operations Research, Production and Operations Management journal, Systems Engineering, Energies, Energy Engineering, Vaccines, etc. He holds a doctorate degree in Industrial Engineering and Operations Research from the University of Massachusetts Amherst, a masters degree in Industrial Engineering from the American University of Cairo, and a Bachelors in Electrical Engineering from the University of Ilorin.

Tags: Seminar