Impact of public policy uncertainty on renewable energy investment: Wind power and the production tax credit

Merrill Jones Barradale

Energy Policy, 2010, vol. 38, issue 12, 7698-7709

Abstract: It is generally understood that the pattern of repeated expiration and short-term renewal of the federal production tax credit (PTC) causes a boom-bust cycle in wind power plant investment in the US. This on-off pattern is detrimental to the wind industry, since ramp-up and ramp-down costs are high, and players are deterred from making long-term investments. It is often assumed that the severe downturn in investment during "off" years implies that wind power is unviable without the PTC. This assumption turns out to be unsubstantiated: this paper demonstrates that it is not the absence of the PTC that causes the investment downturn during "off" years, but rather the uncertainty over its return. Specifically, it is the dynamic of power purchase agreement (PPA) negotiations in the face of PTC renewal uncertainty that drives investment volatility. With contract negotiations prevalent in the renewable energy industry, this finding suggests that reducing uncertainty is a crucial component of effective renewable energy policy. The PTC as currently structured is not the only means, existing or potential, for encouraging wind power investment. Using data from a survey of energy professionals, various policy instruments are compared in terms of their perceived stability for supporting long-term investment.

Keywords: Regulatory; uncertainty; Wind; energy; policy; Power; purchase; agreement (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (119)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0301-4215(10)00636-1
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:enepol:v:38:y:2010:i:12:p:7698-7709

Access Statistics for this article

Energy Policy is currently edited by N. France

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