Journal
EUROPEAN JOURNAL OF OPERATIONAL RESEARCH
Volume 220, Issue 1, Pages 225-237Publisher
ELSEVIER
DOI: 10.1016/j.ejor.2012.01.017
Keywords
OR in energy; Renewable energy; Support schemes; Investment under uncertainty; Real options
Funding
- Carlsberg Fondet in Denmark [2008 01 0344]
- Research Council of Norway [199908/S60]
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This paper adopts a real options approach to analyze investment timing and capacity choice for renewable energy projects under different support schemes. The main purpose is to examine investment behavior under the most extensively employed support schemes, namely, feed-in tariffs and renewable energy certificate trading. We consider both multiple sources of uncertainty under each support scheme and uncertainty with respect to any change of support scheme, and we obtain both analytical (when possible) and numerical solutions. In a Nordic case study based on wind power, we find that the feed-in tariff encourages earlier investment. Nevertheless, as investment has been undertaken, renewable energy certificate trading creates incentives for larger projects. In our baseline scenario and taking the fixed feed-in tariff as a base, the revenue required to trigger investments is 61% higher with renewable certificates. At the same time, investment capacity is 61% higher. (C) 2012 Elsevier B.V. All rights reserved.
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