The value of green energy under regulation uncertainty

Jerome Detemple, Yerkin Kitapbayev

Research output: Contribution to journalArticlepeer-review

15 Scopus citations

Abstract

We examine investments in power generation projects under policy uncertainty, when the investor has the choice between two alternative technologies, a gas-fired plant and a wind plant. Increased likelihood of subsidy withdrawal reduces the payoff from and postpones investments in the wind technology. Simultaneously, it accelerates investments in gas, thereby eliminating or further postponing investments in wind capacity. We show that this substitution phenomenon can be of first order importance: it can have a significant impact on the timing of investment, the wind premium, and the probability of investing in the wind technology. Our results provide new insights about the scope and impact of green energy regulation.

Original languageBritish English
Article number104807
JournalEnergy Economics
Volume89
DOIs
StatePublished - Jun 2020

Keywords

  • Gas-fired plant
  • Green energy
  • Real options
  • Regulation uncertainty
  • Subsidy
  • Wind plant

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