Climate Change, Operating Flexibility, and Corporate Investment Decisions

Chen Lin, Thomas Schmid and Michael Weisbach
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Thomas Schmid: The University of Hong Kong - Faculty of Business and Economics

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Extreme temperatures lead to large fluctuations in electricity demand and wholesale prices of electricity, which in turn affects the optimal production process for firms to use. Using a large international sample of planned power plant projects, we measure the way that electric utilities’ investment decisions depend on the frequency of extreme temperatures. We find that they invest more in regions with more extreme temperatures. These investments are mostly in flexible gas and oil-fired power plants that can easily adjust their output to improve their operating flexibility. Our results suggest that climate change is becoming a meaningful factor affecting firms’ behavior.

JEL-codes: G30 G31 (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-cfn, nep-ene, nep-env and nep-reg
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Citations: View citations in EconPapers (3)

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http://ssrn.com/abstract=3478625

Related works:
Working Paper: Climate Change, Operating Flexibility and Corporate Investment Decisions (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2019-26

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