Optimal power investment and pandemics: A micro-economic analysis

Jerome Detemple, Yerkin Kitapbayev

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

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.

Original languageBritish English
Article number814
JournalEnergies
Volume14
Issue number4
DOIs
StatePublished - 2 Feb 2021

Keywords

  • Electricity
  • Gas
  • Green energy
  • Investment
  • Mutually exclusive projects
  • Pandemic

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