 Investment cost specifications revisitedMathias Mier and Valeriya Azarova Energy Policy, 2024, vol. 188, issue C Abstract: Policymakers often misjudge the results of technology-rich optimization models with high spatial and temporal resolutions, primarily due to variations in investment cost specifications. These models exhibit different sensitivities towards changing cost of capital (CoC) and discount rates. In this study, we utilize an intertemporally optimizing power market model to analyze three investment cost specifications, leading to distinct rates of adoption for specific generation technologies and diverging system cost, electricity prices, and carbon prices. The first specification assumes equity financing only, showcasing complete insensitivity to changing CoC. This specification promotes early wind power deployment and yields the lowest carbon prices. Conversely, the second specification, which involves a mix of equity and debt financing, demonstrates high sensitivity to changing CoC and postpones wind power deployment to later periods. The third specification, which assumes debt financing only, is insensitive to changing discount rates and generally results in the lowest investments and the highest carbon prices. Keywords: Investment cost; Discounting; Cost of capital; Optimization model; Power market model (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:188:y:2024:i:c:s0301421524000788 DOI: 10.1016/j.enpol.2024.114058 Access Statistics for this article Energy Policy is currently edited by N. France More articles in Energy Policy from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.