Renewable energy investment: Policy and market impacts

Reuter, W.H., Szolgayova, J., Fuss, S., & Obersteiner, M. ORCID: (2012). Renewable energy investment: Policy and market impacts. Applied Energy 97 249-254. 10.1016/j.apenergy.2012.01.021.

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The liberalization of electricity markets in recent years has enhanced competition among power generating firms facing uncertain decisions of competitors and thus uncertain prices. At the same time, prompting renewable energy has been a key ingredient in energy policy seeking to decarbonize 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: Article
Uncontrolled Keywords: Real options; Energy policy; Renewables; Market effects
Research Programs: Ecosystems Services and Management (ESM)
Bibliographic Reference: Applied Energy; 97:249-254 (Published online 17 February 2012) (September 2012)
Depositing User: IIASA Import
Date Deposited: 15 Jan 2016 08:46
Last Modified: 27 Aug 2021 17:22

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