Economic analysis of alternative fuels
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This dissertation focuses on energy economics with the employment of real option analysis and time-series modeling to investigate U.S. wood pellets and natural gas markets. The primary objectives involve assessing the economic feasibility of adopting relative cleaner fuels, as wood pellets vs. coal in U.S. coal power plants and compressed natural gas vs. diesel in a private heavy-duty shipping fleet. The motivations for this research are the current expansion of U.S. export wood pellets to EU and U.S. domestic shale gas boom. The primary procedures employed are real option analysis and examination of wood pellets sustainability by detecting the time series dynamic linkage between energy prices of nonrenewables with renewables. The first essay, published in Energy Policy, investigates the employment of the bioenergy technology of co-firing wood pellets with coal in U.S. electric utilities. Our results from real options analysis indicate co-firing is not currently economically feasible within the U.S., and is likely to be hindered by the recent U.S. natural-gas boom. For co-fired adoption, government incentives or an increase in natural-gas prices are required. The second essay, submitted to Energy, explores further employing real option analysis to assess the impact of U.S. shale gas boom on the optimal fuel selection, compressed natural gas vs. diesel, for a private shipping fleet. Our results indicate that it is economically feasible for fleet operators to switch from diesel- to CNG-fueled fleets under current shale gas boom. Governmental incentives for fleet operators’ adoption of CNG-fueled vehicles are likely not required. With the likely increase in natural gas prices, it will be the early CNG adopter who most benefits. The third essay employs a Structural Vector Autoregression (SVAR) along with a BEKK-MGARCH model to conduct an empirical analysis on the inter-linkage between the nonrenewable and renewable energy markets involved in the wood pellets production chain. Results suggest a limited potential exists for negative effects of higher nonrenewable energy prices yielding upward pressure on wood pellet markets with little influence on price volatility. The results support the view of any stability or sustainability concerns of nonrenewable inputs affecting the wood pellet market are not warranted.