IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v53y2016icp76-89.html
   My bibliography  Save this article

Optimal design of feed-in-tariffs to stimulate renewable energy investments under regulatory uncertainty — A real options analysis

Author

Listed:
  • Ritzenhofen, Ingmar
  • Spinler, Stefan

Abstract

Feed-in-tariffs (FITs) are widely used as policy instruments to promote investments in renewable energy sources (RES). While FITs are often regarded as the most effective RES support scheme, regulators around the world continuously review their FIT schemes in the light of budget constraints and evolving policy goals. We assess the impact of adjustments to FIT schemes by quantifying the relationship between FIT levels, i.e., the guaranteed amount paid per quantity of electricity produced and the propensity to invest in RES. Through a regime switching model, we quantify the impact of regulatory uncertainty induced by regulators considering moves from a FIT scheme to a more market-oriented regulatory regime. Our focus is on market-independent, fixed FITs, the dominant scheme in Europe receiving increasing attention globally. We find that RES investment projects under market-independent, fixed FIT schemes become now-or-never decisions and derive FIT thresholds required to induce investment. We show that uncertainty regarding future regulatory regimes delays or even reduces investment activity for FIT levels near electricity market prices and high probabilities of an imminent regime switch.

Suggested Citation

  • Ritzenhofen, Ingmar & Spinler, Stefan, 2016. "Optimal design of feed-in-tariffs to stimulate renewable energy investments under regulatory uncertainty — A real options analysis," Energy Economics, Elsevier, vol. 53(C), pages 76-89.
    • Handle: RePEc:eee:eneeco:v:53:y:2016:i:c:p:76-89
    DOI: 10.1016/j.eneco.2014.12.008
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988314003247
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2014.12.008?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Feed-in-tariffs; Renewable energy; Power generation; Renewable energy support schemes; Regime switching; Real options;
    All these keywords.

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:53:y:2016:i:c:p:76-89. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.