Optimization of China's energy structure based on portfolio theory

Facing the mounting pressures of meeting energy and environment needs and reducing its dependence for fossil fuels, China needs to make more effort to develop renewable energy. This paper attempts to use portfolio theory to optimize China's overall energy system with considering the learning curve effect of renewable energy cost and the characteristic of fossil energy cost increasing over time. It also takes into account additional factors such as environmental costs of coal consumption and various growth rates of the cumulative R&D (research and development) capacity for solar power. This research has found that the development of renewable energy in China has tremendous potential but it will not replace fossil energy in the next decades. The sensitivity analysis of this paper indicates that development of solar power is driven not only by the cumulative installed capacity but also by the cumulative R&D capacity.