IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v63y2013icp1111-1125.html
   My bibliography  Save this article

Probabilistic decision model of wind power investment and influence of green power market

Author

Listed:
  • Gillenwater, Michael

Abstract

This paper presents results from a model of a representative wind power investor's decision making process using a Monte Carlo simulation of a project financial analysis. Data, in the form of probability distribution functions (PDFs) for key input variables were collected from interviews with investors and other professionals active in the U.S. wind power industry using a formal expert elicitation protocol. This study presents the first quantitative estimates of the effect of the U.S. voluntary Renewable Energy Certificate (REC) market on renewable energy generation. The results indicate that the investment decisions of wind power project developers in the United States are unlikely to have been altered by the voluntary REC market. The problem with the current voluntary REC market is that it does not offer developers a reliable risk-adjusted revenue stream. Consequently, the claims by U.S. green power retailers and promoters that voluntary market RECs result in additional wind power projects lack credibility. Even dramatic increases in voluntary market REC prices, in the absence of long-term contracts, were found to have only a small effect on investor behavior.

Suggested Citation

  • Gillenwater, Michael, 2013. "Probabilistic decision model of wind power investment and influence of green power market," Energy Policy, Elsevier, vol. 63(C), pages 1111-1125.
    • Handle: RePEc:eee:enepol:v:63:y:2013:i:c:p:1111-1125
    DOI: 10.1016/j.enpol.2013.09.049
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421513009737
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.enpol.2013.09.049?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
    2. Diaz-Rainey, Ivan & Ashton, John K., 2008. "Stuck between a ROC and a hard place? Barriers to the take up of green energy in the UK," Energy Policy, Elsevier, vol. 36(8), pages 3043-3051, August.
    3. Litvine, Dorian & Wüstenhagen, Rolf, 2011. "Helping "light green" consumers walk the talk: Results of a behavioural intervention survey in the Swiss electricity market," Ecological Economics, Elsevier, vol. 70(3), pages 462-474, January.
    4. Agterbosch, Susanne & Meertens, Ree M. & Vermeulen, Walter J.V., 2009. "The relative importance of social and institutional conditions in the planning of wind power projects," Renewable and Sustainable Energy Reviews, Elsevier, vol. 13(2), pages 393-405, February.
    5. Rose, Steven K. & Clark, Jeremy & Poe, Gregory L. & Rondeau, Daniel & Schulze, William D., 2002. "The private provision of public goods: tests of a provision point mechanism for funding green power programs," Resource and Energy Economics, Elsevier, vol. 24(1-2), pages 131-155, February.
    6. Hansla, Andre & Gamble, Amelie & Juliusson, Asgeir & Garling, Tommy, 2008. "Psychological determinants of attitude towards and willingness to pay for green electricity," Energy Policy, Elsevier, vol. 36(2), pages 768-774, February.
    7. Robert T. Clemen & Robert L. Winkler, 1985. "Limits for the Precision and Value of Information from Dependent Sources," Operations Research, INFORMS, vol. 33(2), pages 427-442, April.
    8. 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.
    9. Gillenwater, Michael, 2008. "Redefining RECs--Part 2: Untangling certificates and emission markets," Energy Policy, Elsevier, vol. 36(6), pages 2120-2129, June.
    10. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    11. Schutzer, George J., 2010. "Recent Tax Law Changes Create New Opportunities for Leasing Wind Energy Property," The Electricity Journal, Elsevier, vol. 23(1), pages 47-56, January.
    12. Harry Otway & Detlof von Winterfeldt, 1992. "Expert Judgment in Risk Analysis and Management: Process, Context, and Pitfalls," Risk Analysis, John Wiley & Sons, vol. 12(1), pages 83-93, March.
    13. Bolinger, Mark & Wiser, Ryan, 2009. "Wind power price trends in the United States: Struggling to remain competitive in the face of strong growth," Energy Policy, Elsevier, vol. 37(3), pages 1061-1071, March.
    14. Kotchen, Matthew J. & Moore, Michael R., 2007. "Private provision of environmental public goods: Household participation in green-electricity programs," Journal of Environmental Economics and Management, Elsevier, vol. 53(1), pages 1-16, January.
    15. Gillenwater, Michael, 2008. "Redefining RECs--Part 1: Untangling attributes and offsets," Energy Policy, Elsevier, vol. 36(6), pages 2109-2119, June.
    16. Carl S. Spetzler & Carl-Axel S. Staël Von Holstein, 1975. "Exceptional Paper--Probability Encoding in Decision Analysis," Management Science, INFORMS, vol. 22(3), pages 340-358, November.
    17. Roe, Brian & Teisl, Mario F. & Levy, Alan & Russell, Matthew, 2001. "US consumers' willingness to pay for green electricity," Energy Policy, Elsevier, vol. 29(11), pages 917-925, September.
    18. Mewton, Ross T. & Cacho, Oscar J., 2011. "Green Power voluntary purchases: Price elasticity and policy analysis," Energy Policy, Elsevier, vol. 39(1), pages 377-385, January.
    19. Bolinger, Mark & Wiser, Ryan, 2012. "Understanding wind turbine price trends in the U.S. over the past decade," Energy Policy, Elsevier, vol. 42(C), pages 628-641.
    20. Bode, Sven & Michaelowa, Axel, 2003. "Avoiding perverse effects of baseline and investment additionality determination in the case of renewable energy projects," Energy Policy, Elsevier, vol. 31(6), pages 505-517, May.
    21. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-477, June.
    22. Oliver, Henry & Volschenk, Jako & Smit, Eon, 2011. "Residential consumers in the Cape Peninsula's willingness to pay for premium priced green electricity," Energy Policy, Elsevier, vol. 39(2), pages 544-550, February.
    23. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    24. Spyros Makridakis & Robert L. Winkler, 1983. "Averages of Forecasts: Some Empirical Results," Management Science, INFORMS, vol. 29(9), pages 987-996, September.
    25. Alagappan, L. & Orans, R. & Woo, C.K., 2011. "What drives renewable energy development?," Energy Policy, Elsevier, vol. 39(9), pages 5099-5104, September.
    26. Barradale, Merrill Jones, 2010. "Impact of public policy uncertainty on renewable energy investment: Wind power and the production tax credit," Energy Policy, Elsevier, vol. 38(12), pages 7698-7709, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Darmani, Anna & Rickne, Annika & Hidalgo, Antonio & Arvidsson, Niklas, 2016. "When outcomes are the reflection of the analysis criteria: A review of the tradable green certificate assessments," Renewable and Sustainable Energy Reviews, Elsevier, vol. 62(C), pages 372-381.
    2. Elena Verdolini & Laura Díaz Anadón & Erin Baker & Valentina Bosetti & Lara Aleluia Reis, 2018. "Future Prospects for Energy Technologies: Insights from Expert Elicitations," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 12(1), pages 133-153.
    3. Nan Shang & Guori Huang & Yuan Leng & Jihong Zhang & Angxing Shen, 2023. "Time Limit of Environmental Benefits of Renewable Energy Power Projects—Analysis Based on Monte Carlo Simulation," Sustainability, MDPI, vol. 15(20), pages 1-14, October.
    4. Ivan Ruiz Manuel & Kornelis Blok, 2023. "Quantitative evaluation of large corporate climate action initiatives shows mixed progress in their first half-decade," Nature Communications, Nature, vol. 14(1), pages 1-15, December.
    5. Curran, Louise & Lv, Ping & Spigarelli, Francesca, 2017. "Chinese investment in the EU renewable energy sector: Motives, synergies and policy implications," Energy Policy, Elsevier, vol. 101(C), pages 670-682.
    6. Wu, Zhongqun & Sun, Hongxia, 2015. "Behavior of Chinese enterprises in evaluating wind power projects: A review based on survey," Renewable and Sustainable Energy Reviews, Elsevier, vol. 43(C), pages 133-142.
    7. Jaroslava Janekova & Jana Fabianova & Andrea Rosova, 2016. "Environmental And Economic Aspects In Decision Making Of The Investment Project “Wind Park”," Polish Journal of Management Studies, Czestochowa Technical University, Department of Management, vol. 13(1), pages 90-100, June.
    8. Kumar, Indraneel & Tyner, Wallace E. & Labi, Samuel & Sinha, Kumares C., 2021. "“The Answer My Friend is Blowin’ in the Wind”: A stochastic assessment of wind farms financial feasibility and economic efficiency," Energy Policy, Elsevier, vol. 159(C).
    9. Sarah Hafner & Olivia James & Aled Jones, 2019. "A Scoping Review of Barriers to Investment in Climate Change Solutions," Sustainability, MDPI, vol. 11(11), pages 1-19, June.
    10. Gillenwater, Michael & Lu, Xi & Fischlein, Miriam, 2014. "Additionality of wind energy investments in the U.S. voluntary green power market," Renewable Energy, Elsevier, vol. 63(C), pages 452-457.
    11. Galzi, Pierre-Yves, 2023. "Do green electricity consumers contribute to the increase in electricity generation capacity from renewable energy sources? Evidence from France," Energy Policy, Elsevier, vol. 179(C).
    12. Nicu Bizon & Phatiphat Thounthong, 2020. "Energy Efficiency and Fuel Economy of a Fuel Cell/Renewable Energy Sources Hybrid Power System with the Load-Following Control of the Fueling Regulators," Mathematics, MDPI, vol. 8(2), pages 1-22, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dagher, Leila & Bird, Lori & Heeter, Jenny, 2017. "Residential green power demand in the United States," Renewable Energy, Elsevier, vol. 114(PB), pages 1062-1068.
    2. Motz, Alessandra, 2021. "Consumer acceptance of the energy transition in Switzerland: The role of attitudes explained through a hybrid discrete choice model," Energy Policy, Elsevier, vol. 151(C).
    3. Michael G. Pollitt & Irina Shaorshadze, 2013. "The role of behavioural economics in energy and climate policy," Chapters, in: Roger Fouquet (ed.), Handbook on Energy and Climate Change, chapter 24, pages 523-546, Edward Elgar Publishing.
    4. Oerlemans, Leon A.G. & Chan, Kai-Ying & Volschenk, Jako, 2016. "Willingness to pay for green electricity: A review of the contingent valuation literature and its sources of error," Renewable and Sustainable Energy Reviews, Elsevier, vol. 66(C), pages 875-885.
    5. Cardella, Eric & Ewing, Brad & Williams, Ryan Blake, 2018. "Green is Good – The Impact of Information Nudges on the Adoption of Voluntary Green Power Plans," 2018 Annual Meeting, February 2-6, 2018, Jacksonville, Florida 266583, Southern Agricultural Economics Association.
    6. Tabi, Andrea & Hille, Stefanie Lena & Wüstenhagen, Rolf, 2014. "What makes people seal the green power deal? — Customer segmentation based on choice experiment in Germany," Ecological Economics, Elsevier, vol. 107(C), pages 206-215.
    7. Zorić, Jelena & Hrovatin, Nevenka, 2012. "Household willingness to pay for green electricity in Slovenia," Energy Policy, Elsevier, vol. 47(C), pages 180-187.
    8. Bodo Sturm & Joachim Weimann, 2006. "Experiments in Environmental Economics and Some Close Relatives," Journal of Economic Surveys, Wiley Blackwell, vol. 20(3), pages 419-457, July.
    9. Kaenzig, Josef & Heinzle, Stefanie Lena & Wüstenhagen, Rolf, 2013. "Whatever the customer wants, the customer gets? Exploring the gap between consumer preferences and default electricity products in Germany," Energy Policy, Elsevier, vol. 53(C), pages 311-322.
    10. Arnab Mitra & Michael R. Moore, 2018. "Green Electricity Markets as Mechanisms of Public-Goods Provision: Theory and Experimental Evidence," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 71(1), pages 45-71, September.
    11. Litvine, Dorian & Wüstenhagen, Rolf, 2011. "Helping "light green" consumers walk the talk: Results of a behavioural intervention survey in the Swiss electricity market," Ecological Economics, Elsevier, vol. 70(3), pages 462-474, January.
    12. Conte, Marc N. & Jacobsen, Grant D., 2016. "Explaining Demand for Green Electricity Using Data from All U.S. Utilities," Energy Economics, Elsevier, vol. 60(C), pages 122-130.
    13. Dagher, Leila & Harajli, Hassan, 2015. "Willingness to pay for green power in an unreliable electricity sector: Part 1. The case of the Lebanese residential sector," Renewable and Sustainable Energy Reviews, Elsevier, vol. 50(C), pages 1634-1642.
    14. Chan, Kai-Ying & Oerlemans, Leon A.G. & Volschenk, Jako, 2015. "On the construct validity of measures of willingness to pay for green electricity: Evidence from a South African case," Applied Energy, Elsevier, vol. 160(C), pages 321-328.
    15. Stewart, Thomas R. & Roebber, Paul J. & Bosart, Lance F., 1997. "The Importance of the Task in Analyzing Expert Judgment," Organizational Behavior and Human Decision Processes, Elsevier, vol. 69(3), pages 205-219, March.
    16. MacPherson, Ronnie & Lange, Ian, 2013. "Determinants of green electricity tariff uptake in the UK," Energy Policy, Elsevier, vol. 62(C), pages 920-933.
    17. Kraeusel, Jonas & Möst, Dominik, 2012. "Carbon Capture and Storage on its way to large-scale deployment: Social acceptance and willingness to pay in Germany," Energy Policy, Elsevier, vol. 49(C), pages 642-651.
    18. Matthew Kotchen & Michael Moore, 2008. "Conservation: From Voluntary Restraint to a Voluntary Price Premium," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(2), pages 195-215, June.
    19. Carsten Herbes & Lorenz Braun & Dennis Rube, 2016. "Pricing of Biomethane Products Targeted at Private Households in Germany—Product Attributes and Providers’ Pricing Strategies," Energies, MDPI, vol. 9(4), pages 1-15, March.
    20. Bae, Jeong Hwan & Rishi, Meenakshi, 2018. "Increasing consumer participation rates for green pricing programs: A choice experiment for South Korea," Energy Economics, Elsevier, vol. 74(C), pages 490-502.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:63:y:2013:i:c:p:1111-1125. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.