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TitleFeed-in tariffs with minimum price guarantees and regulatory uncertainty
Author(s)Barbosa, Luciana
Ferrao, Paulo
Rodrigues, Artur
Sardinha, Alberto
KeywordsReal options
Feed-in tariff
Price-floor regime
Regulatory uncertainty
Issue date1-May-2018
PublisherElsevier Science BV
JournalEnergy Economics
Abstract(s)The feed-in tariff (FIT) program is a popular policy for incentivizing new renewable energy projects because it establishes a long-term contract with renewable energy investors. This paper presents a novel model to analyze a FIT contract with a minimum price guarantee (i.e., a price-floor regime) from an investor's perspective. The results show that a perpetual guarantee only induces investment for prices below the price floor when offering a risk-free investment opportunity. In contrast, the finite guarantee may induce investment even when the revenue from the guarantee is lower than the investment cost. When an investor faces a scenario with regulatory uncertainty, a higher and more likely reduction in the price floor induces earlier investment. For all cases, investors postpone an investment decision when market conditions present a higher price volatility. (C) 2018 Elsevier B.V. All rights reserved.
AccessEmbargoed access (2 Years)
Appears in Collections:NIPE - Artigos em Revistas de Circulação Internacional com Arbitragem Científica

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