On the evaluation of infrastructure investments: the case of electricity generation
We derive general equilibrium cost-benefit rules for investment in a small power plant that needs (or does not need) carbon emission permits for production. Both atemporal and intertemporal models are considered, the latter showing e. g. that there exists a kind of option value also under certainty. Finally we introduce uncertainty by briefly discussing the concepts of quasi-option and option values and a switching possibility that is available for flexible power plants like hydropower ones which can easily be turned on and turned off.
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