Impact of public policy uncertainty on renewable energy investment: Wind power and the production tax credit
AbstractIt is generally understood that the pattern of repeated expiration and short-term renewal of the federal production tax credit (PTC) causes a boom-bust cycle in wind power plant investment in the US. This on-off pattern is detrimental to the wind industry, since ramp-up and ramp-down costs are high, and players are deterred from making long-term investments. It is often assumed that the severe downturn in investment during "off" years implies that wind power is unviable without the PTC. This assumption turns out to be unsubstantiated: this paper demonstrates that it is not the absence of the PTC that causes the investment downturn during "off" years, but rather the uncertainty over its return. Specifically, it is the dynamic of power purchase agreement (PPA) negotiations in the face of PTC renewal uncertainty that drives investment volatility. With contract negotiations prevalent in the renewable energy industry, this finding suggests that reducing uncertainty is a crucial component of effective renewable energy policy. The PTC as currently structured is not the only means, existing or potential, for encouraging wind power investment. Using data from a survey of energy professionals, various policy instruments are compared in terms of their perceived stability for supporting long-term investment.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Energy Policy.
Volume (Year): 38 (2010)
Issue (Month): 12 (December)
Contact details of provider:
Web page: http://www.elsevier.com/locate/enpol
Regulatory uncertainty Wind energy policy Power purchase agreement;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Wiser, Ryan H., 1997. "Renewable energy finance and project ownership : The impact of alternative development structures on the cost of wind power," Energy Policy, Elsevier, vol. 25(1), pages 15-27, January.
- Johnston, Angus & Kavali, Amalia & Neuhoff, Karsten, 2008.
"Take-or-pay contracts for renewables deployment,"
Elsevier, vol. 36(7), pages 2481-2503, July.
- Meyer, Niels I. & Koefoed, Anne Louise, 2003. "Danish energy reform: policy implications for renewables," Energy Policy, Elsevier, vol. 31(7), pages 597-607, June.
- Kahn, Edward, 1996. "The production tax credit for wind turbine powerplants is an ineffective incentive," Energy Policy, Elsevier, vol. 24(5), pages 427-435, May.
- Langniss, Ole & Wiser, Ryan, 2003. "The renewables portfolio standard in Texas: an early assessment," Energy Policy, Elsevier, vol. 31(6), pages 527-535, May.
- Wiser, Ryan & Bolinger, Mark & Barbose, Galen, 2007. "Using the Federal Production Tax Credit to Build a Durable Market for Wind Power in the United States," The Electricity Journal, Elsevier, vol. 20(9), pages 77-88, November.
- Daniel Ellsberg, 2000. "Risk, Ambiguity and the Savage Axioms," Levine's Working Paper Archive 7605, David K. Levine.
- Agnolucci, Paolo, 2006. "Use of economic instruments in the German renewable electricity policy," Energy Policy, Elsevier, vol. 34(18), pages 3538-3548, December.
- Shirley, Rebekah & Kammen, Daniel, 2013. "Renewable energy sector development in the Caribbean: Current trends and lessons from history," Energy Policy, Elsevier, vol. 57(C), pages 244-252.
- Lu, Xi & Tchou, Jeremy & McElroy, Michael B. & Nielsen, Chris P., 2011. "The impact of Production Tax Credits on the profitable production of electricity from wind in the U.S," Energy Policy, Elsevier, vol. 39(7), pages 4207-4214, July.
- Bergek, Anna & Mignon, Ingrid & Sundberg, Gunnel, 2013. "Who invests in renewable electricity production? Empirical evidence and suggestions for further research," Energy Policy, Elsevier, vol. 56(C), pages 568-581.
- Lüthi, Sonja & Prässler, Thomas, 2011. "Analyzing policy support instruments and regulatory risk factors for wind energy deployment--A developers' perspective," Energy Policy, Elsevier, vol. 39(9), pages 4876-4892, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.