An evolutionary model of energy transitions with interactive innovation-selection dynamics

We develop a stylized application of a new evolutionary model to study an energy transition in electricity production. The framework describes a population of boundedly rational electricity producers who decide each period on the allocation of profits among different energy technologies. They tend to invest in below-average cost energy technologies, while also devoting a small fraction of profits to alternative technological options and research on recombinant innovation. Energy technologies are characterized by costs falling with cumulative investments. Without the latter, new technologies have no chance to become cost competitive. We study the conditions under which a new energy technology emerges and technologies coexist. In addition, we determine which investment heuristics are optimal in the sense of minimizing the total cost of electricity production. This is motivated by the idea that, while diversity contributes to system adaptability (innovation) and resilience to unforeseen contingencies (keeping options open), a high cost will discourage investments in it.