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Policy uncertainties: What investment choice for solar panel producers?

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  • Pan, Yingjie
  • Yao, Xing
  • Wang, Xin
  • Zhu, Lei

Abstract

Solar power has achieved great development in the last decade, and it should continue to play a central role in the face of climate change and sustainable development challenges. This paper builds a real options model that provides a microeconomic analytical framework with the Least Squares Monte Carlo (LSM) method to assess the investment choices of a typical solar panel producer in China facing trade and domestic supply- and demand-side policy uncertainties. It builds a baseline scenario and three policy scenarios with decreasing anti-dumping and countervailing charges, constant feed-in tariff (FIT) level and reduced investment cost. A typical producer will have to make an investment decision on building a new production line in five years based on a decision impact analysis within 20 years. The result shows an immediate investment decision for all scenarios. The producer will have higher return from investment in building a solar power plant with a constant FIT. Export is the optimal choice in other scenarios where investment return is lower. After sensitivity analysis, the paper concludes and can be used as a toolkit for solar panel producers and a reference for policy makers to evaluate the impact of policy uncertainties.

Suggested Citation

  • Pan, Yingjie & Yao, Xing & Wang, Xin & Zhu, Lei, 2019. "Policy uncertainties: What investment choice for solar panel producers?," Energy Economics, Elsevier, vol. 78(C), pages 454-467.
    • Handle: RePEc:eee:eneeco:v:78:y:2019:i:c:p:454-467
    DOI: 10.1016/j.eneco.2018.11.022
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    Cited by:

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    3. Xu, Jin-Hua & Yi, Bo-Wen & Fan, Ying, 2020. "Economic viability and regulation effects of infrastructure investments for inter-regional electricity transmission and trade in China," Energy Economics, Elsevier, vol. 91(C).
    4. Lau, Lin-Sea & Choong, Yuen-Onn & Wei, Chooi-Yi & Seow, Ai-Na & Choong, Chee-Keong & Senadjki, Abdelhak & Ching, Suet-Ling, 2020. "Investigating nonusers’ behavioural intention towards solar photovoltaic technology in Malaysia: The role of knowledge transmission and price value," Energy Policy, Elsevier, vol. 144(C).
    5. Andreolli, Francesca & D’Alpaos, Chiara & Moretto, Michele, 2022. "Valuing investments in domestic PV-Battery Systems under uncertainty," Energy Economics, Elsevier, vol. 106(C).

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    More about this item

    Keywords

    Solar power; Feed-in tariffs; Anti-dumping and countervailing; Least Squares Monte Carlo;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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