Please use this identifier to cite or link to this item:
http://hdl.handle.net/11144/4746
Title: | Feed-in Tariff Contract Schemes and Regulatory Uncertainty |
Authors: | Barbosa, Luciana Nunes, Cláudia Rodrigues, Artur Sardinha, Alberto |
Keywords: | Investment Analysis Real Options Feed-In-Tariff Regulatory Uncertainty |
Issue Date: | 2020 |
Publisher: | CICEE. Universidade Autónoma de Lisboa |
Abstract: | This paper presents a novel analysis of two feed-in tariffs (FIT) under market and regulatory uncertainty, namely a sliding premium with cap and floor and a minimum price guarantee. Regulatory uncertainty is modeled with a Poisson process, whereby a jump event may reduce the tariff before the signature of the contract. Using a semi-analytical real options framework, we derive the project value, the optimal investment threshold, and the value of the investment opportunity for these schemes. Taking into consideration the optimal investment threshold, we also compare the two aforementioned FITs with the fixed -price FIT and the fixed-premium FIT, which are policy schemes that have been extensively studied in the literature. Our results show that increasing the likelihood of a jump event lowers the investment threshold for all the schemes; moreover, the investment threshold als o decreases when the tariff reduction increases. We also compare the four schemes in terms of the corresponding optimal investment thresholds. For example, we find that the investment threshold of the sliding premium is lower than the minimum price guarantee. This result suggests that the first regime is a better policy than the latter because it accelerates the investment while avoiding excessive earnings to producers. |
Peer Reviewed: | no |
URI: | http://hdl.handle.net/11144/4746 |
metadata.dc.identifier.doi: | https://doi.org/10.26619/UAL-CICEE/WP01.2020 |
Appears in Collections: | WPs_2020 |
Files in This Item:
File | Description | Size | Format | |
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WORKIN PAPER 01-2020.pdf | 1,45 MB | Adobe PDF | View/Open |
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