Development Policy Centre Discussion Paper No. 13
February 2012
Renewable technologies have been advocated in Small Island Developing States (SIDS) as a risk mitigation measure against oil price volatility. This paper applies empirical data in a custom-built stochastic simulation model in order to assess the economic impacts of renewable technology investments in Fiji’s electricity grid. The model extends previous applications of portfolio theory to the electricity sector by incorporating variability of output from different technologies. The results demonstrate that investments in low-cost, low-risk renewable technologies, such as geothermal, energy efficiency, biomass and bagasse technologies, can be expected to lower both generation costs and financial risk for the electricity grid in Fiji. These results are driven by the reduction in oil-fired generation that these investments entail. The benefits of hydropower and several other “intermittent” renewable technologies are more limited in the model, given that they require costly investment in back-up oil based generating capacity.
This discussion paper was subsequently accepted for publication in an academic journal.
