Journal
ENERGY ECONOMICS
Volume 89, Issue -, Pages -Publisher
ELSEVIER
DOI: 10.1016/j.eneco.2020.104807
Keywords
Wind plant; Gas-fired plant; Real options; Subsidy; Regulation uncertainty
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We examine investments in power generation projects under policy uncertainty, when the investor has the choice between two alternative technologies, a gas-fired plant and a wind plant. Increased likelihood of subsidy withdrawal reduces the payoff from and postpones investments in the wind technology. Simultaneously, it accelerates investments in gas, thereby eliminating or further postponing investments in wind capacity. We show that this substitution phenomenon can be of first order importance: it can have a significant impact on the timing of investment, the wind premium, and the probability of investing in the wind technology. Our results provide new insights about the scope and impact of green energy regulation . (C) 2020 Elsevier B.V. All rights reserved.
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