Long-term perspective on the development of solar energy

We use dynamic optimization methods to analyze the development of solar tec hnologies in light of the increasing scarcity and environmental pollution a ssociated with fossil fuel combustion. Learning from solar R&D efforts accu mulates in the form of knowledge to gradually reduce the cost of solar ener gy, while the scarcity and pollution externalities associated with fossil f uel combustion come into effect through shadow prices that must he included in the effective cost of fossil energy. Accounting for these processes, we characterize the optimal time profiles of fossil and solar energy supply r ates and the optimal investment in solar R&D. We find that the optimal rate of fossil energy supply should decrease over time and vanish continuously upon depletion of the fossil fuel reserves, while the optimal supply of sol ar energy should gradually increase and eventually take over the entire ene rgy demand. The optimal solar R&D investment should initially be set at the highest feasible rate, calling for early engagement in solar R&D programs, long before large scale solar energy production becomes competitive. (C) 2 000 Elsevier Science Ltd. All rights reserved.