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Uncertainty in Renewable Energy Policy: How do Renewable Energy Credit markets and Production Tax Credits affect decisions to invest in renewable energy?

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  • Eryilmaz, Derya
  • Homans, Frances

Abstract

This paper examines the impacts of uncertainties in the US renewable energy policy on the investment decisions of renewable electricity producers. We develop a dynamic optimization model to understand how investment in wind energy depends on market and policy uncertainties in renewable energy markets. These uncertainties include the stochastic prices in the market for Renewable Electricity Credits (RECs) and the federal government's uncertain decision about continuation of Production Tax Credit (PTC) program. Results contribute to our understanding of the impact of the REC market and policy decisions on the profitability threshold required for investors to commit to renewable energy investments. Uncertainty about the renewable energy policy raises the threshold to invest in renewable energy. This paper also examines the relationship between two important renewable energy policies and their impacts on these investments. This paper has the potential to significantly contribute to the existing renewable energy development debate because the RECs prices are introduced explicitly as a random factor in a model of investment in renewable energy.

Suggested Citation

  • Eryilmaz, Derya & Homans, Frances, 2013. "Uncertainty in Renewable Energy Policy: How do Renewable Energy Credit markets and Production Tax Credits affect decisions to invest in renewable energy?," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150018, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea13:150018
    DOI: 10.22004/ag.econ.150018
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    Keywords

    Environmental Economics and Policy; Resource /Energy Economics and Policy;

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