Feed-in tariff contract schemes and regulatory uncertainty

DOI10.1016/J.EJOR.2020.04.054MaRDI QIDQ2189948zbMATH OpenOpenAlexFDO

Authors Luciana Barbosa, Artur Rodrigues, Alberto Sardinha, Cláudia Nunes

Publication date 17 June 2020

Published in European Journal of Operational Research (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2002.02107

zbMATH Keywords

feed-in tariffinvestment analysisreal optionsregulatory uncertainty

Mathematics Subject Classification ID

Environmental economics (natural resource models, harvesting, pollution, etc.) (91B76) Corporate finance (dividends, real options, etc.) (91G50)

Abstract: This paper presents a novel analysis of two feed-in tariffs (FIT) under market and regulatory uncertainty, namely a sliding premium with cap and floor and a minimum price guarantee. Regulatory uncertainty is modeled with a Poisson process, whereby a jump event may reduce the tariff before the signature of the contract. Using a semi-analytical real options framework, we derive the project value, the optimal investment threshold, and the value of the investment opportunity for these schemes. Taking into consideration the optimal investment threshold, we also compare the two aforementioned FITs with the fixed-price FIT and the fixed-premium FIT, which are policy schemes that have been extensively studied in the literature. Our results show that increasing the likelihood of a jump event lowers the investment threshold for all the schemes; moreover, the investment threshold also decreases when the tariff reduction increases. We also compare the four schemes in terms of the corresponding optimal investment thresholds. For example, we find that the investment threshold of the sliding premium is lower than the minimum price guarantee. This result suggests that the first regime is a better policy than the latter because it accelerates the investment while avoiding excessive earnings to producers.

Recommendations

• Renewable energy investments under different support schemes: a real options approach
• Renewable generation expansion under different support schemes: a stochastic equilibrium approach
• Efficient feed-in-tariff policies for renewable energy technologies
• Green investment under time-dependent subsidy retraction risk
• Optimal price subsidies under uncertainty

Cites work

• Analytical solution for an investment problem under uncertainties with shocks
• Applied stochastic control of jump diffusions.
• Investment and capacity choice under uncertain demand
• Investment decisions with finite-lived collars
• Optimal transition to renewable energy with threshold of irreversible pollution
• Renewable energy investments under different support schemes: a real options approach
• Subsidy scheme or price discount scheme? Mass adoption of electric vehicles under different market structures

Cited in

(6)

• Renewable energy investments under different support schemes: a real options approach
• Optimal price subsidies under uncertainty
• Efficient feed-in-tariff policies for renewable energy technologies
• A review of the operations literature on real options in energy
• How damaging are environmental policy targets in terms of welfare?
• Finite maturity caps and floors on continuous flows under the constant elasticity of variance process

This page was built for publication: Feed-in tariff contract schemes and regulatory uncertainty

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2189948)