Journal
ENERGY ECONOMICS
Volume 72, Issue -, Pages 517-541Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.eneco.2018.04.028
Keywords
Real options; Feed-in tariff; Price-floor regime; Regulatory uncertainty
Categories
Funding
- PhD scholarship by Fundacao para a Ciencia e a Tecnologia (FCT) through MIT Portugal program [SFRH/BD/52086/2013]
- national funds through Fundacao para a Ciencia e a Tecnologia (FCT) [UID/CEC/50021/2013]
- COMPETE [POCI-01-0145-FEDER-006683 (UID/ECO/03182/2013)]
- FCT/MEC's (Fundacao para a Cincia e a Tecnologia, I.P.)
- ERDF through Operational Programme on Competitiveness and Internationalization - COMPETE 2020
- Fundação para a Ciência e a Tecnologia [SFRH/BD/52086/2013] Funding Source: FCT
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The feed-in tariff (FIT) program is a popular policy for incentivizing new renewable energy projects because it establishes a long-term contract with renewable energy investors. This paper presents a novel model to analyze a FIT contract with a minimum price guarantee (i.e., a price-floor regime) from an investor's perspective. The results show that a perpetual guarantee only induces investment for prices below the price floor when offering a risk-free investment opportunity. In contrast, the finite guarantee may induce investment even when the revenue from the guarantee is lower than the investment cost. When an investor faces a scenario with regulatory uncertainty, a higher and more likely reduction in the price floor induces earlier investment. For all cases, investors postpone an investment decision when market conditions present a higher price volatility. (C) 2018 Elsevier B.V. All rights reserved.
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