Climate uncertainty and technological innovation shape investments in renewable energy for small off-grid islands

Abstract

In this paper, we propose a methodological framework for assessing the influence of climate uncertainty and technological innovation on renewable investments in small off-grid islands.At the core of the framework, an energy system model calculates the system performance in terms of Present Value of Cost. Through reiterate simulation of the model under different system designs, including photovoltaic, wind turbines, and wave energy converters, and future scenarios, the framework allows to identify the key climate drivers and technological parameters of system performance, and the most robust investments. The framework is demonstrated in the case study of Ustica Island, Italy.Results highlight wind speed as the key climate driver affecting system performance. The effects of technological innovation are instead strictly dependent on the technology considered and the level of risk aversion of the decision maker.With respect to the technology competitiveness, photovoltaic is nowadays the most robust investment irrespective of the future uncertainty on natural resource availability and technological innovation. The competitiveness of wind and wave technologies is instead strictly affected by climate and technological uncertainty. Although wind technology is currently more competitive than wave, except for high-risk averse decision-makers, results show that the wave improvement estimated for 2030 and 2050 could make this technology an effective investment in the short/medium term. This suggests the importance of carefully deciding the timing of the investments reducing current investments in the wind for installing higher wave capacity in the future could in fact lead to more effective investments over the entire planning horizon.