The case of accumulating economic rent from renewable energy resources with a recursive expansion process

Abstract

In this paper, several scenarios are developed to assess the accumulation of a resource rent in a special resource fund. We assume that this economic rent is from renewable electrical energy resources and an explicit transmission cost is defined to connect these resources to an electricity market. The model employed is recursive with a recursion step for each project in an expansion sequence, as introduced in a previous companion paper. The rent is calculated assuming a given cost profile for the resources and a given electricity market price, where the electric power output is brought to this market through a special connector, such as a HVDC submarine link. Transmission cost assumptions are made for the link and a market price is assumed known but the amount may vary for different future scenarios. The accumulated net rent is then estimated given a known expansion sequence with these construction and transmission costs and market prices, and the dynamics of expansion and accumulation is studied, based on such assumptions. Then a case study involving the geothermal and hydroelectric resources of Iceland is conducted and the results are shown assuming a future Iceland-United Kingdom submarine link. The results include the rate of accumulation for a resource fund, using as reasonable cost and market assumptions as possible.