The real options to shutdown, startup, and abandon: U.S. electricity industry evidence

Stein-Erik Fleten, Erik Haugom and Carl J. Ullrich

Energy Economics, 2017, vol. 63, issue C, 1-12

Abstract: The purpose of this paper is to examine empirically the partially irreversible decisions to shutdown, startup, and abandon existing production assets under cash flow uncertainty and regulatory uncertainty. We use detailed information for 1121 individual electric power generators located in the U.S. for the period 2001–2009 and find strong evidence of real options effects. We find that both profitability uncertainty and regulatory uncertainty decrease the probability of shutdown. Regulatory uncertainty also decreases the probability of startup, but we find that cash flow uncertainty increases the probability of startup, especially for large generators.

Keywords: Regulatory uncertainty; Real options; Retail competition; Stranded costs; Investment decisions (search for similar items in EconPapers)
JEL-codes: D81 E22 G31 L51 L94 Q41 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988317300269
Full text for ScienceDirect subscribers only

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:eee:eneeco:v:63:y:2017:i:c:p:1-12

DOI: 10.1016/j.eneco.2017.01.016

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().