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The impact of climate policy on heat and power capacity investment decisions

In: Emissions Trading and Business

Author

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  • Harri Laurikka

    (Helsinki University of Technology)

Abstract

Climate policy has become a major source of uncertainty in energy investments. This paper explores how different instruments of climate policy, such as emissions trading and taxes, affect heat and power capacity investment decisions. I start here with an analysis on the role of climate policy instruments in an investment decision process. Secondly, I examine how climate policy instruments affect the key components of a quantitative investment appraisal and how flexibility can help to cope with those impacts. Flexibility characteristics of some existing heat and power generation technologies are discussed. I find that climate policy increases the value of flexibility in energy investments. There are structural differences in flexibility between heat and power generation technologies. Whereas some technologies provide managerial flexibility through the options to alter operating scale and through the option to switch between fuels or products, others provide passive flexibility (robustness).

Suggested Citation

  • Harri Laurikka, 2006. "The impact of climate policy on heat and power capacity investment decisions," Springer Books, in: Ralf Antes & Bernd Hansjürgens & Peter Letmathe (ed.), Emissions Trading and Business, pages 133-149, Springer.
    • Handle: RePEc:spr:sprchp:978-3-7908-1748-5_10
    DOI: 10.1007/3-7908-1748-1_10
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    Cited by:

    1. Szolgayova, Jana & Fuss, Sabine & Obersteiner, Michael, 2008. "Assessing the effects of CO2 price caps on electricity investments--A real options analysis," Energy Policy, Elsevier, vol. 36(10), pages 3974-3981, October.
    2. Pahle, Michael, 2010. "Germany's dash for coal: Exploring drivers and factors," Energy Policy, Elsevier, vol. 38(7), pages 3431-3442, July.

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