Investment timing and capacity choice under rate-of-return regulation for renewable energy support

Mariia Kozlova, Stein-Erik Fleten and Verena Hagspiel

Energy, 2019, vol. 174, issue C, 591-601

Abstract: This study analyzes a renewable energy (RE) support scheme recently introduced in Russia and compares it to the most frequently applied policy measures, feed-in tariff (FiT) and feed-in premium (FiP) schemes. In particular, we present an analytical formulation of the problem set-up and study optimal investment timing and capacity choice employing a real options approach. In addition, we conduct detailed sensitivity analyses to highlight how different policies shape investment behavior. The contributions of this paper include modeling the Russian RE support mechanism in a dynamic programming framework that allows us to show that such a RE support design offers a strong case for transferring market risks away from the investor and has potential for a unique combination of effectiveness and cost efficiency.

Keywords: Capacity mechanism; Renewable energy policy; Real options; Dynamic programming (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:174:y:2019:i:c:p:591-601

DOI: 10.1016/j.energy.2019.02.175

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