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Evaluating uncertain investment decisions in low-carbon transition toward renewable energy

Author

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  • Zhang, M.M.
  • Wang, Qunwei
  • Zhou, Dequn
  • Ding, H.

Abstract

This paper proposed a model for solving the investment decisions amidst uncertainty in the low-carbon transition toward renewable energy. The real option method is used and numerous influencing factors are considered, including the market price of electricity, fossil fuel cost, carbon dioxide price, investment cost and long-term changes of feed-in tariff policy associated with renewable energy. The investment decisions related to the transition from a coal-fired power plant to a solar photovoltaic power plant in China have been analyzed in detail. The results indicate the optimal transition investment strategy and elucidate the effects of multiple factors on the investment strategy. This provides a clear suggestion for both the government and investor how to scientifically address uncertainty and make optimal investment decision to accelerate the low-carbon transition.

Suggested Citation

  • Zhang, M.M. & Wang, Qunwei & Zhou, Dequn & Ding, H., 2019. "Evaluating uncertain investment decisions in low-carbon transition toward renewable energy," Applied Energy, Elsevier, vol. 240(C), pages 1049-1060.
    • Handle: RePEc:eee:appene:v:240:y:2019:i:c:p:1049-1060
    DOI: 10.1016/j.apenergy.2019.01.205
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    More about this item

    Keywords

    Optimal investment decision; Low-carbon transition; Renewable energy; Uncertainty; Real options;
    All these keywords.

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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