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Wind farm investment risks under uncertain CDM benefit in China

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  • Yang, Ming
  • Nguyen, François
  • De T'Serclaes, Philippine
  • Buchner, Barbara
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    Abstract

    China has set an ambitious target to increase its wind power capacity by 35Â GW from 2007 to 2020. The country's hunger for clean power provides great opportunities for wind energy investors. However, risks from China's uncertain electricity market regulation and an uncertain energy policy framework, mainly due to uncertain Clean Development Mechanism (CDM) benefits, prevent foreign investors from investing in China's wind energy. The objectives of this paper are to: (1) quantify wind energy investment risk premiums in an uncertain international energy policy context and (2) evaluate the impact of uncertain CDM benefits on the net present values of wind power projects. With four scenarios, this study simulates possible prices of certified emissions reductions (CERs) from wind power projects. Project net present values (NPVs) have been calculated. The project risk premiums are drawn from different and uncertain CER prices. Our key findings show that uncertain CDM benefits will significantly affect the project NPVs. This paper concludes that the Chinese government needs revising its tariff incentives, most likely by introducing fixed feed-in tariffs (FITs), and re-examining its CDM-granting policy and its wind project tax rates, to facilitate wind power development and enable China to achieve its wind energy target.

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    Bibliographic Info

    Article provided by Elsevier in its journal Energy Policy.

    Volume (Year): 38 (2010)
    Issue (Month): 3 (March)
    Pages: 1436-1447

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    Handle: RePEc:eee:enepol:v:38:y:2010:i:3:p:1436-1447

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    Web page: http://www.elsevier.com/locate/enpol

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    Keywords: Climate change Energy policy Wind energy economics;

    References

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    Cited by:
    1. Liu, Xuemei, 2013. "The value of holding scarce wind resource—A cause of overinvestment in wind power capacity in China," Energy Policy, Elsevier, vol. 63(C), pages 97-100.
    2. Lam, J.C.K. & Woo, C.K. & Kahrl, F. & Yu, W.K., 2013. "What moves wind energy development in China? Show me the money!," Applied Energy, Elsevier, vol. 105(C), pages 423-429.
    3. Zhao, Xiaoli & Zhang, Sufang & Yang, Rui & Wang, Mei, 2012. "Constraints on the effective utilization of wind power in China: An illustration from the northeast China grid," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(7), pages 4508-4514.
    4. Zhao, Zhen-yu & Sun, Guang-zheng & Zuo, Jian & Zillante, George, 2013. "The impact of international forces on the Chinese wind power industry," Renewable and Sustainable Energy Reviews, Elsevier, vol. 24(C), pages 131-141.
    5. Qing Pei & Lanlan Liu & David Zhang, 2013. "Carbon emission right as a new property right: rescue CDM developers in China from 2012," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 13(3), pages 307-320, September.

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