The Impact of Rate-of-Return Regulation on Electricity Generation from Renewable Energy

Adrienne Ohler ()
Additional contact information
Adrienne Ohler: Department of Economics, Illinois State University

No 20110403, Working Paper Series from Illinois State University, Department of Economics

Abstract: Traditional electric utility companies face a trade-off between building generation facilities that utilize renewable energy (RE) and non-renewable energy (non-RE). The firm’s input decision to build capacity for either source depends on several constraining factors, including input prices, policies that promote or discourage RE use, and the type of regulation faced by the firm. This paper models the utility company’s decision between RE and non-RE capital types. From the model, two main results are derived. First, rate-of-return (ROR) regulation decreases the investment in RE capital relative to the unregulated firm. These findings suggest restructuring electricity generation markets, which removes the ROR on generating assets, can increase the relative use of RE. Second, the renewable portfolio standard (RPS) increases the investment in capital and labor that requires RE as a source of electricity, as expected. The model shows that the impact of an RPS depends on the amount of ROR regulation.

Keywords: renewable portfolio standard; renewable energy; rate-of-return regulation (search for similar items in EconPapers)
JEL-codes: L2 L51 L94 Q2 Q3 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2011-05
New Economics Papers: this item is included in nep-ene and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://economics.illinoisstate.edu/RePec/Papers/RPS_Firm_Theory.pdf First version, 2011 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://economics.illinoisstate.edu/RePec/Papers/RPS_Firm_Theory.pdf [301 Moved Permanently]--> https://economics.illinoisstate.edu/RePec/Papers/RPS_Firm_Theory.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ils:wpaper:20110403

Access Statistics for this paper

More papers in Working Paper Series from Illinois State University, Department of Economics
Bibliographic data for series maintained by B. Andrew Chupp ( this e-mail address is bad, please contact ).