Optimal Power Investment and Pandemics: A Micro-Economic Analysis

Jerome Detemple and Yerkin Kitapbayev
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Yerkin Kitapbayev: Department of Mathematics, North Carolina State University, 2311 Stinson Drive, Raleigh, NC 27695, USA

Energies, 2021, vol. 14, issue 4, 1-25

Abstract: This paper derives the optimal investment policy of an electricity producer during a pandemic. We consider three problems: (1) investing in a gas-fired plant, (2) investing in a wind plant, and (3) investing in the best of a gas plant and a wind plant. Optimal investment boundaries are characterized and valuation formulas derived. For single technology projects, a pandemic postpones wind investment, but can accelerate gas investment when the relative price of gas decreases. For choices between the two technologies, a substitution effect can reinforce the single technology effects, accelerating gas investment under certain conditions. The paper examines the impact of pandemic parameters, economic parameters and policy parameters on the investment boundaries, the values of projects and the premium for green energy.

Keywords: investment; pandemic; electricity; gas; mutually exclusive projects; green energy (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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