Benefits of investing in energy R&D and portfolio optimization: the case of Spain

Abstract

Given the importance of technological innovation to pursue clean, secure and affordable energy supply at a global scale, policies promoting R&D in energy technologies become crucial. However, the high uncertainty involved in assessing the outcomes of R&D investments greatly complicates the design of these policies. This paper aims to assess part of the benefits that investing in R&D in energy technologies could bring about: particularly, the magnitude of the savings that could be realized in energy systems if R&D investments result in reductions in the cost of energy technologies. The Spanish energy system is used as a case study. Potential savings for the Spanish energy system in 2030 are obtained from introducing data on the effect of R&D investments in future costs of energy technologies (from expert elicitation studies) into a bottom-up partial-equilibrium model of the Spanish energy system. Results show that savings may greatly exceed R&D investments when the cost reduction achieved for a technology makes the technology competitive, but there is a high degree of uncertainty on which technologies will succeed. These results support the argument for considering a portfolio of energy technologies when investing in energy R&D. The authors would like to extend this work by performing an analysis of the optimal energy R&D investment portfolio for a country like Spain, whose investment decisions affect only marginally the future cost of technologies.