Measuring Financial Impacts of the Renewable Energy Based Fiscal Policy in Colombia under Electricity Price Uncertainty

Alejandro Castillo-Ramírez and Diego Mejía-Giraldo
Additional contact information
Alejandro Castillo-Ramírez: Group of Efficient Energy Management, Universidad de Antioquia, Carrera 53 No. 61-30, Medellín 050010, Colombia
Diego Mejía-Giraldo: Department of Electrical Engineering, Universidad de Antioquia, Calle 67 No. 53-108, Medellín 050010, Colombia

Sustainability, 2021, vol. 13, issue 4, 1-28

Abstract: This paper analyses the financial implications, from the point of view of an investor in renewable energy, which sells the energy for an uncertain price of electricity and decides to take advantage of the Colombian tax policy over the renewable energy. The policy, known as Investment Tax Allowance (ITA), encourages installation of renewable projects in a country traditionally dominated by hydro power. Price is modeled as a non-stationary autoregressive stochastic process with normally distributed error terms. Costs, and uncertain revenue and taxes are considered to assess the financial impact on a solar project when the policy is implemented. Since impact varies according to project ownership, two cases are evaluated: a generation company (GENCO-1) that only owns the solar project; and, an existent generation company (GENCO-2) that owns a portfolio of projects. Results indicate that if ITA is applied, it is likely that the GENCO-1 cannot take the full advantage of the incentive, as opposed to the GENCO-2. Although this policy might not satisfy planner objectives since it does not guarantee the construction of significantly high capacity of new renewable energy projects, it definitely represents an attractive mechanism to decrease tax obligations at the GENCO-2 level. Finally, a theoretical analysis shows that investment cost affects the mean of the present value; whereas tax rates impacts both its mean and standard deviation.

Keywords: electricity market price; financial viability; fiscal policy; solar PV; investment tax allowance (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2071-1050/13/4/2010/pdf (application/pdf)
https://www.mdpi.com/2071-1050/13/4/2010/ (text/html)

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:gam:jsusta:v:13:y:2021:i:4:p:2010-:d:498658

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().