How to design a dynamic feed-in tariffs mechanism for renewables – a real options approach

Li Li, Junqi Liu, Lei Zhu and Xiao-Bing Zhang

International Journal of Production Research, 2020, vol. 58, issue 14, 4352-4366

Abstract: Feed-in tariffs (FITs) are among the most favoured policies with which to drive the deployment of renewable energy. This paper offers insights into quantifying dynamic FITs to realise the expected installed capacity target with minimum policy cost under uncertainties of renewable intermittence and technology learning. We incorporate real options and use stochastic dynamic programming to model the strategic behaviour between policy-maker and investor and extend the one-time investment decision described by Farrell et al. [2017. ‘Specifying an Efficient Renewable Energy Feed-in Tariff.’ The Energy Journal 38: 53–75] to multiple-period decisions. An approach that combines binary tree scenario generation and a least squares Monte Carlo method is used to numerically identify the optimal FITs plan in practice. China’s offshore wind power investment is used as a case study to investigate the relationships among the optimal dynamic FITs level, the total policy cost, the expected capacity target, and the learning effect. The simulation results demonstrate that our proposed dynamic FITs can track the changes in technology learning well and that they can avoid the inefficiency of fixed FITs in stimulating technology adoption in the initial periods, along with overpayment by the policy-maker.

Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1080/00207543.2019.1652776 (text/html)
Access to full text is restricted to subscribers.

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:taf:tprsxx:v:58:y:2020:i:14:p:4352-4366

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/TPRS20

DOI: 10.1080/00207543.2019.1652776

Access Statistics for this article

International Journal of Production Research is currently edited by Professor A. Dolgui

More articles in International Journal of Production Research from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().