Renewable energy investment: Policy and market impacts

Reuter WH, Szolgayova J, Fuss S, & Obersteiner M (2011). Renewable energy investment: Policy and market impacts. In: Energy Solutions for a Sustainable World - Proceedings of the Third International Conference on Applied Energy (ICAE2011), 16-18 May 2011.

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Abstract

The liberalization of electricity markets in recent years has enhanced competition among power-generaing firms facing uncertain decisions of competitors and thus uncertain prices. At the same time, promoting renewable energy has been a key ingredient in energy policy seeking to de-carbonize the energy mix. Public incentives for companies to invest in renewable technologies range from feed-in tariffs, to investment subsidies, tax credits, portfolio requirements and certificate systems.

We use a real options model in discrete time with lumpy multiple investments to analyze the decisions of an electricity producer to invest into new power generating capacity, to select the type of technology and to optimize its operation under price uncertainty and with market effects. We account for both the specific characteristics of renewables and the market effects of investment decisions. The prices are determined endogenously by the supply of electricity in the market and by exogenous electricity price uncertainty.

The framework is used to analyze energy policy, as well as the reaction of producers to uncertainty in the political and regulatory framework. In this way, we are able to compare different policies to foster investment into renewables and analyze their impacts on the market.

Item Type: Conference or Workshop Item (UNSPECIFIED)
Uncontrolled Keywords: Real Options; Energy policy; Renewables; Market effects
Research Programs: Ecosystems Services and Management (ESM)
Forestry (FOR)
Bibliographic Reference: In: U. Desideri, J. Yan (eds); Energy Solutions for a Sustainable World - Proceedings of the Third International Conference on Applied Energy (ICAE2011); 16-18 May 2011, Perugia, Italy
Depositing User: IIASA Import
Date Deposited: 15 Jan 2016 08:46
Last Modified: 20 Jan 2016 16:46
URI: http://pure.iiasa.ac.at/9796

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