The value of green energy under regulation uncertainty

Jerome Detemple and Yerkin Kitapbayev

Energy Economics, 2020, vol. 89, issue C

Abstract: We examine investments in power generation projects under policy uncertainty, when the investor has the choice between two alternative technologies, a gas-fired plant and a wind plant. Increased likelihood of subsidy withdrawal reduces the payoff from and postpones investments in the wind technology. Simultaneously, it accelerates investments in gas, thereby eliminating or further postponing investments in wind capacity. We show that this substitution phenomenon can be of first order importance: it can have a significant impact on the timing of investment, the wind premium, and the probability of investing in the wind technology. Our results provide new insights about the scope and impact of green energy regulation.

Keywords: Green energy; Wind plant; Gas-fired plant; Real options; Subsidy; Regulation uncertainty (search for similar items in EconPapers)
JEL-codes: G13 L94 Q40 Q42 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:89:y:2020:i:c:s014098832030147x

DOI: 10.1016/j.eneco.2020.104807

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