Renewable Energy Investment under Carbon Emission Regulations

Yuan Yuan, Feng Cai and Lingling Yang
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Yuan Yuan: School of Energy and Safety, Anhui University of Science and Technology, Huainan 232001, China
Feng Cai: School of Energy and Safety, Anhui University of Science and Technology, Huainan 232001, China
Lingling Yang: School of Energy and Safety, Anhui University of Science and Technology, Huainan 232001, China

Sustainability, 2020, vol. 12, issue 17, 1-15

Abstract: This paper considers a risk-neutral energy supplier who operates an electricity plant in an uncertain demand market. To characterize the impact of carbon emission quota and emergency supply cost of coal electricity, we first consider four different cases, (1) traditional energy without carbon emission restriction; (2) traditional energy with carbon emission quota; (3) mixed energy (both traditional and renewable energy) without carbon emission restriction, and (4) mixed energy with carbon emission quota, to find the optimal renewable energy investment level and coal inventory mechanism for an energy supplier. Then, through the analysis we derive the resulting equilibriums: coal inventory for electricity generation and the investment of renewable energy capacity. By comparing the performances under different scenarios, we find that (a) renewable energy establishment can mitigate the depression of carbon emission constraint, (b) the energy supplier can obtain positive benefits from optimal mixed energy strategy if the additional emergency cost of traditional energy is not too high, and (c) the optimal renewable energy capacity level is decreasing in the carbon emission quota. Our numerical simulations imply that the impact of additional emergency cost to the profit difference between mixed energy strategy and traditional energy strategy is mediated by carbon emission quota.

Keywords: renewable energy; carbon emission regulations; capacity investment; emergency cost (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
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