crisis or opportunity economic degrowth for social equity and ecological sustainability introduction to this special issue abstract this article reviews the burgeoning emerging literature on sustainable degrowth this is defined as an equitable downscaling of production and consumption that increases human well being and enhances ecological conditions at the local and global level in the short and long term the paradigmatic propositions of degrowth are that economic growth is not sustainable and that human progress without economic growth is possible degrowth proponents come from diverse origins some are critics of market globalization new technologies or the imposition of western models of development in the rest of the world all criticize gdp accounting though they propose often different social and ecological indicators degrowth theorists and practitioners support an extension of human relations instead of market relations demand a deepening of democracy defend ecosystems and propose a more equal distribution of wealth we distinguish between depression i e unplanned degrowth within a growth regime and sustainable degrowth a voluntary smooth and equitable transition to a regime of lower production and consumption the question we ask is how positive would degrowth be if instead of being imposed by an economic crisis it would actually be a democratic collective decision a project with the ambition of getting closer to ecological sustainability and socio environmental justice worldwide most articles in this issue were originally presented at the april 2008 conference in paris on economic degrowth for ecological sustainability and social equity this conference brought the word degrowth and the concepts around it into an international academic setting articles of this special issue are summarized in this introductory article hueting d alessandro and colleagues van den bergh kerschner spangenberg and alcott discuss whether current growth patterns are un sustainable and offer different perspectives on what degrowth might mean and whether and under what conditions it might be desirable matthey and hamilton focus on social dynamics and the obstacles and opportunities for voluntary social action towards degrowth lietaert and cattaneo with gavalda offer a down to earth empirical discussion of two practical living experiments cohousing and squats highlighting the obstacles for scaling up such alternatives finally van griethuysen explains why growth is an imperative in modern market economies raising also the question whether degrowth is possible without radical institutional changes

feed in tariff contract schemes and regulatory uncertainty 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 also 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 for producers or excessive payments for consumers

feed in tariffs with minimum price guarantees and regulatory uncertainty abstract 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

an integrated approach to climate change income distribution employment and economic growth a demand driven growth model involving capital accumulation and the dynamics of greenhouse gas ghg concentration is set up to examine macroeconomic issues raised by global warming e g effects on output and employment of rising levels of ghg offsets by mitigation relationships among energy use and labor productivity income distribution and growth the economic significance of the jevons and other paradoxes sustainable consumption and possible reductions in employment and sources of instability and cyclicality implicit in the two dimensional dynamical system the emphasis is on the combination of biophysical limits and post keynesian growth theory and the qualitative patterns of system adjustment and the dynamics that emerge

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

risk neutral and risk averse approaches to multistage renewable investment planning under uncertainty abstract strategies for investing in renewable energy projects present high risks associated with generation and price volatility and dynamics existing approaches for determining optimal strategies are based on real options theory that often simplify the uncertainty process or on stochastic programming approaches that simplify the dynamic aspects in this paper we bridge the gap between these approaches by developing a multistage stochastic programming approach that includes real options such as postponing hedging with fixed forward contracts and combination with other sources the proposed model is solved by a procedure based on the stochastic dual dynamic programming sddp method the framework is extended to the risk averse setting a specific case study in investment in hydro and wind projects in the brazilian market is used to illustrate that the investment strategies generated by the proposed approach are efficient

investment and capacity choice under uncertain demand this paper extends the real options literature by discussing an investment problem where a firm has to determine optimal investment timing and optimal capacity choice at the same time under conditions of irreversible investment expenditures and uncertainty in future demand after the project is installed with a certain maximum capacity this capacity is fixed as an upper boundary to the output and cannot be adjusted later on it turns out that in the framework of this once and for all decision uncertainty in future demand leads to an increase in optimal installed capacity but on the other hand it causes investment to be delayed to an extent that even small uncertainty makes waiting and accumulation of further information the optimal decision for large ranges of demand limiting the capacity which may be installed weakens this extreme effect of uncertainty

sequential investment in renewable energy technologies under policy uncertainty although innovation and support schemes are among the main forces that drive investment in renewable energy re technologies both involve considerable uncertainty we develop a real options framework to analyse the impact of technological policy and electricity price uncertainty on the decision to invest sequentially in successively improved versions of a re technology technological uncertainty is reflected in the random arrival of innovations and policy uncertainty in the likely provision or retraction of a subsidy that takes the form of a fixed premium on top of the electricity price we show that greater likelihood of subsidy retraction provision lowers raises the incentive to invest and by comparing a stepwise to a lumpy investment strategy we show how an embedded option to adopt an improved technology version mitigates the impact of subsidy retraction on investment timing specifically we show how stepwise investment facilitates earlier technology adoption compared to lumpy investment and that under stepwise investment technological uncertainty accelerates technology adoption thus further offsetting the incentive to delay investment in the light of subsidy retraction

economic growth inequality and well being in advanced industrial societies rising levels of inequality have contributed strongly to the observed gap that has emerged between per capita income and the index of sustainable economic welfare isew which in its current versions is known as the genuine progress indicator gpi yet the isew gpi approach to measuring the social costs of inequality has been criticized as ad hoc the present paper reviews the literature on this topic and efforts to resolve it based on the construction of indicators grounded in a a classical utilitarian ethical framework and b empirical evidence on the relationship between income and well being in the united states after tax income per capita grew at an annual rate of 1 7 between 1979 and 2011 a growth rate of 1 2 per year arises when income is adjusted to account for the social costs of inequality the most common adjustment used in isew gpi studies yields a similar growth rate despite much smaller subtractions from baseline income

investment risks under uncertain climate change policy abstract this paper describes results from a model of decision making under uncertainty using a real options methodology developed by the international energy agency iea the model represents investment decisions in power generation from the perspective of a private company the investments are subject to uncertain future climate policy which is treated as an external risk factor over which the company has no control the aims of this paper are to i quantify these regulatory risks in order to improve understanding of how policy uncertainty may affect investment behaviour by private companies and ii illustrate the effectiveness of the real options approach as a policy analysis tool the study analysed firms investment options of coal and gas fired power plants and carbon capture and storage ccs technologies policy uncertainty is represented as an exogenous event that creates uncertainty in the carbon price our findings indicate that climate policy uncertainty creates a risk premium for power generation investments in the case of gas and coal fired power generation the risk premium would lead to an increase in electricity prices of 5 10 in order to stimulate investment in the case of ccs the risk premium would increase the carbon price required to stimulate investment by 16 37 compared to a situation of perfect certainty the option to retrofit ccs acts as a hedge against high future carbon prices and could accelerate investment in coal plant this paper concludes that to minimise investment risks in low carbon technologies policy makers should aim to provide some long term regulatory certainty

photovoltaic electricity production in brazil a stochastic economic viability analysis for small systems in the face of net metering and tax incentives abstract currently in addition to the search for sustainable development there is increased pressure for a change in consumption and production of energy patterns in brazil in this scenario net metering is an important mechanism fostering dissemination of small photovoltaic pv solar systems as complementary support to net metering a tax exemption is currently being offered in some brazilian states thus the objective of the present study is to analyze the impact of tax exemption on the circulation of goods and services and the returns and risks of the pv microgeneration project in four cities located in different regions of brazil belem petrolina uberaba and uruguaiana the analysis is performed using the monte carlo simulation mcs wherein uncertainties related to the financial and environmental variables are considered the results of the stochastic economic viability analysis allowed us to conclude that the exemption of tax on circulation of goods and services icms is fundamental to make pv microgeneration viable in brazil in the cities analyzed pv microgeneration presented economic unfeasibility to the investor when the icms is charged when considering the icms exemption policy the cities of petrolina and belem obtained high probabilities of viability in relation to the risk analysis pv microgeneration obtained the best results in petrolina both in terms of the condition of collection and exemption of icms there is high potential for harness solar throughout the brazilian territory however due to the current evolution stage and the productive chain of the brazilian pv industry high costs limit the expansion of this clean energy generation technology the findings of this study could assist policymakers in evaluating this incentive program highlighting that this tax exemption directly meets one of the objectives for which the icms was created which is to encourage the development of productive sectors such as pv industry

ces technology and business cycle fluctuations we contribute to an emerging literature that brings the constant elasticity of substitution ces specification of the production function into the analysis of business cycle fluctuations using us data we estimate by bayesian maximum likelihood methods a standard medium sized dsge model with a ces rather than cobb douglas cd technology we estimate a elasticity of substitution between capital and labour well below unity at 0 15 0 18 in a marginal likelihood race ces decisively beats the cd production and this is matched by its ability to fit the data better in terms of second moments we show that this result is mainly driven by the implied fluctuations of factor shares under the ces specification the ces model performance is further improved when the estimation is carried out under an imperfect information assumption hence the main message for dsge models is that we should dismiss once and for all the use of cd for business cycle analysis

valuation and optimal operation of electric power plants in competitive markets we present an algorithm for the valuation and optimal operation of hydroelectric and thermal power generators in deregulated electricity markets real options theory is used to derive nonlinear partial integro differential equations pides for the valuation and optimal operating strategies of both types of facilities the equations are designed to incorporate a wide class of spot price models that can exhibit the same time dependent mean reverting dynamics and price spikes as those observed in most electricity markets particular attention is paid to the operational characteristics of real power generators for thermal power plants these characteristics include variable start up times and costs control response time lags minimum generating levels nonlinear output functions and structural limitations on ramp rates for hydroelectric units head effects and environmental constraints are addressed we illustrate the models with numerical examples of a pump storage facility and a thermal power plant this pide framework can achieve high levels of computational speed and accuracy while incorporating a wide range of spot price dynamics and operational characteristics

technical change and applications of dynamic duality to agriculture reply larson has made three basic points in his comment on the incorporation of technical change in dynamic duality models a appending a time trend onto the empirical model to account for technical change is inconsistent with an autonomous theoretical model b a current value function v discounted to time to 0 to t should not be confused with a value function j discounted to time t 0 and c the firm s expectations of embodied technical change should be explicitly formulated in the theoretical model the first issue focused on the vasavada and chambers paper and the last two issues were addressed to the howard and shumway paper we will respond to each of these points in order first larson is correct that vasavada and chambers and several other dynamic duality studies have maintained an autonomous theoretical model but estimated a nonautonomous empirical model the bridge between the two models is the assumption of static ex ante technology expectations on the part of producers with ex post awareness of technical change on the part of the analyst while this assumption has seldom been made explicit in research reports and may appear inconsistent its practical importance is often minor for example although we reported results in our ajae article only for the nonautonomous theoretical and empirical model we also estimated the parameters for the autonomous theoretical nonautonomous empirical model there were no differences between the two models in any of the test conclusions and only minor differences in the estimated rateof adjustment parameters second larson s equation 11 is essentially the same as our equation 3 except that he defines a current value function v discounted to time to o to 0 while we define an initial value function j discounted to time t 0 larson alleges that the discounting period alters the interpretation of the parameter estimates however the output supply variable input demand and investment equations are all unaffected by the discounting period thus the interpretation of the estimated output supply and variable input demand equations the rate ofadjustment parameters and associated marginal values of investment in quasi fixed inputs are the same whether one assumes the decision maker acts at time t 0 or t to o to oo finally larson correctly notes that we did not explicitly discuss how embodied technical change was included in our theoretical model the implicitly maintained assumption was larson s third alternative i e that firms have static embodied technology expectations although this assumption may seem counterintuitive given our maintained hypothesis of nonstatic disembodied technology expectations larson s other alternatives also carry their own dilemmas his first alternative was that firms could forecast future embodied technical change with perfect accuracy an impossibility and his second was that firms expect disembodied technical change but actually experience embodied technical change each alternative maintains some conceptual baggage the implications and empirical seriousness of which have not been fully explored we are appreciative of larson s identification of these issues and for the opportunity to enter into a dialogue on some of their theoretical and practical aspects we would also note a printing error of some consequence near the bottom of the second column of p 838 of our paper it should read f4 0

green electricity investments environmental target and the optimal subsidy abstract we investigate the optimal investment decision in renewables under market demand uncertainty in the context of the italian strategy for renewable deployment under the eu policy the firm has to decide about the time and size of the investment we find that a higher subsidy level induces the firm to invest earlier with a smaller investment capacity this implies that a given environmental target cannot be reached by a too high too low subsidy level since this will cause the investment level to be too low too late we show that there exists an optimal intermediate subsidy level due to uncertain demand in some cases ensuring to reach the environmental target in time requires an additional conditional subsidy we propose a heuristic for policy makers stating when and how much subsidy to provide furthermore we find that in a more uncertain economic environment the subsidy adjustment to maintain the target level of investment results in the firm investing earlier which is opposite to the standard real options result

a real option model for renewable energy policy evaluation with application to solar pv power generation in china abstract this study proposes a policy evaluation model from the perspective of government and investors the proposed model which integrates american option method and two factor learning curve method can be used to evaluate the unit decision value and save path rate for renewable energy development and examine the existence of balance point of interest several uncertain factors including non renewable energy cost carbon price renewable energy cost and price subsidy are all considered in this model the model has been applied to evaluate the solar photovoltaic pv power generation in china our empirical results show that real option analysis roa is more effective than net present value analysis npv when handling uncertainty under current level of subsidy the government would suffer loss and the investors could benefit so that it is difficult to achieve the balance of interest during the planning period with the reduction of subsidy rate they can achieve the balance of interest

investment timing and optimal capacity choice for small hydropower projects this paper presents a method for assessing small hydropower projects that are subject to uncertain electricity prices we present a real options based method with continuous scaling and we find that there is a unique price limit for initiating the project if the current electricity price is below this limit it is never optimal to invest but above this limit investment is made according to the function for optimal size the connection between the real option and the physical properties of a small hydropower plant is dealt with using a spreadsheet model that performs a technical simulation of the production in a plant based on all the important choices for such a plant the main results of the spreadsheet are simulated production size and the investment costs which are in turn used for finding the value of the real option and the price limit the method is illustrated on three different norwegian small hydropower projects

the impact of chinese carbon emission trading scheme ets on low carbon energy lce investment china is planning to introduce emission trading scheme ets to decrease co2 emission as low carbon energy lce will play a pivotal role in reducing co2 emissions our paper is to assess the extent and the conditions under which a carbon ets can deliver lce investment in china we chose wind technology as a case study and a real option based model was built to explore the impact of a number of variables and design features on investment decisions e g carbon and electricity price carbon market risk carbon price floor and ceiling and on grid ratio we compute critical values of these variables and features and explore trade offs among them according to our work a carbon ets has a significant effect on wind power plant investment although it cannot support investment in wind power on its own carbon price stabilization mechanisms such as carbon price floor can significantly improve the effect of carbon ets but the critical floor to support investment is still much higher than the carbon price in china pilot etss our results show that other policy measures will be needed to promote low carbon energy development in china

towards post keynesian ecological macroeconomics the paper starts with a brief criticism of macroeconomic analyses of different schools of thought for their focus on economic growth and maximisation of output this applies to the traditional keynesian approach which has focused on the achievement of sufficient aggregate demand to underpin full employment and full capacity utilisation down playing aggregate supply constraints this also applies to the neoclassical approach including the current new consensus macroeconomics approach which asserts the dominant role of aggregate supply in the long run and where growth is set by the so called natural rate of growth with no concerns over environmental and ecological issues the paper then proposes a different approach to macroeconomic analysis it explicitly acknowledges that economic growth is a double edged sword growth can help to alleviate persistent levels of high unemployment but it can also lead to potentially catastrophic environmental problems building on the monetary circuit theory and the demand led growth theory the paper offers an analysis of the interconnections and interdependence of the economic biophysical and social worlds and by doing it hopes to provide the building blocks for the establishment of post keynesian ecological macroeconomics

a real options model for renewable energy investment with application to solar photovoltaic power generation in china this paper proposes a real options model for evaluating renewable energy investment by considering uncertain factors such as co2 price non renewable energy cost investment cost and market price of electricity a phase out mechanism is built into the model to reflect the long term changes of subsidy policy we apply the proposed model to empirically evaluate the investment value and optimal timing for solar photovoltaic power generation in china our empirical results show that the current investment environment in china may not be able to attract immediate investment while the development of carbon market helps advance the optimal investment time a sensitivity analysis is conducted to investigate the dynamics of investment value and optimal timing under the changes of unit generating capacity subsidy level market price of electricity co2 price and investment cost it is found that the high investment cost and the volatility of electricity and co2 prices are not conducive to attract immediate investment instead increasing the level of subsidy promoting technological progress and maintaining the stability of market are useful to stimulate investment

hysteresis due to irreversible exit addressing the option to mothball abstract this paper analyses the following hitherto understudied feature in real switching options a firm has a mothballing option and an option to permanently abandon if the firm finds itself in an operating mode with a price just above the abandonment threshold it is unclear whether to exercise the abandonment option or to exercise the mothballing option if the price goes down the firm may exit but surprisingly if it goes up it may mothball we find that two different strategies could be optimal one where mothballing is not a viable option and one where mothballing does occur in the latter case a hysteresis region arises in which the firm produces at a loss while a further price decrease induces exit and a sufficient price increase results in the firm entering the mothballing stage mothballing being optimal requires sufficiently large values of the price trend and the uncertainty parameter

short term variations and long term dynamics in commodity prices in this article we develop a two factor model of commodity prices that allows meanreversion in short term prices and uncertainty in the equilibrium level to which prices revert although these two factors are not directly observable they may be estimated from spot and futures prices intuitively movements in prices for long maturity futures contracts provide information about the equilibrium price level and differences between the prices for the short and long term contracts provide information about short term variations in prices we show that although this model does not explicitly consider changes in convenience yields over time this short term long term model is equivalent to the stochastic convenience yield model developed in gibson and schwartz 1990 we estimate the parameters of the model using prices for oil futures contracts and apply the model to some hypothetical oil linked assets to demonstrate its use and some of its advantages over the gibson schwartz model

application of real options valuation for analysing the impact of public r d financing on renewable energy projects a company s perspective abstract this paper contrasts the financial benefit of grants given to research and development projects with the reduction in managerial flexibility they impose which implies a loss in the value of the project to quantify this loss of value real options analysis has been adopted as the most suitable framework to assess and quantify managerial flexibility this idea is illustrated by the case of a research and development project in renewable energy specifically concentrated solar power our results show that the value added by the grants is less than the nominal incentives received as a result of the loss of flexibility for managers they cannot apply certain options such as deferral nor can they abandon the project therefore a break even grant is proposed that equals the financial incentive with the loss of managerial flexibility under this break even point the grant should be rejected this paper will create awareness for both policy makers and private companies regarding a more accurate assessment of grants to research and development funding as well as provide insights to improve grant schemes without increasing the amount of public funds

technology choice under emission regulation uncertainty in international container shipping abstract we present a real options approach to evaluate technology and capacity choices under regulatory uncertainty our two phase regime switching model includes the option of investing in different technologies as well as a charter and layup option respectively for a base case version of this model we derive an analytical solution before studying the effect of regulatory uncertainty in a numerical extension that relaxes certain restrictive assumptions we then describe three regulatory regimes an emissions cap an emissions tax and a cap and trade market and compare how effectively each reduces emissions applying the model to maritime container shipping we develop insights on the optimal technology choice for reducing sox emissions we find that regulatory uncertainty can increase not only project values but also owned capacity from a regulatory perspective an emissions cap reduces emissions more effectively whereas an emissions tax reduces the cost of regulation the cap and trade market emerges in many respects as superior to an emissions tax finally we show that setting the emissions cap level or deciding on the level above which an emissions tax or emissions trade apply is critical because reduction in total industry emissions are not necessarily continuous

considering risks in early stage investment planning for emission abatement technologies in large combustion plants fossil fuels will continue to be the most important energy source for electricity generation in most parts of the world for the next decades therefore emission abatement technologies in large combustion plants are an important measure to reduce the emission of pollutants and to lower the negative effects thereof for humans animals and the environment investment decisions for emission reduction measures are however facing various kinds of risks and uncertainties caused by political technological economic and legal influences the consideration of these risks in early stage investment planning is often complex yet important for investors this paper investigates the possibilities to consider risks and uncertainties in early stage investment and cost calculation methodologies of different complexity the real options analysis is presented as well as less complex methods such as monte carlo or sensitivity analyses that lower the calculation effort the application of a specifically developed risk portfolio is recommended before quantitatively investigating risks this portfolio helps to identify the most critical risks and to focus on them reducing again the calculation effort the presented approach is not only of interest for investors but also for policies especially if data is scarce or uncertainties exist regarding specific plant parameters or cost and price components the content of this paper is presented using the example of nitrogen oxide emission reduction measures it is however possible to transfer the results to other pollutants or technologies in a related context

geographic attribution of an electricity system renewable energy target local economic social and environmental tradeoffs the 2014 intergovernmental panel on climate change ipcc report asserts that investment in low carbon electricity production will need to rise by several hundred billion dollars annually before 2030 in order to stabilize greenhouse gas concentrations in the atmosphere by 2100 in recognition of this urgent need to mitigate climate change many governments have already established policies to spur renewable energy investment in the electricity sector one such policy measure is a renewable energy target ret which sets a target percentage of electricity production to be generated from renewable sources by a specified date variations on this policy have been implemented around the world from the eu 20 20 20 to diverse renewable portfolio standards in u s states and municipalities this work analyzes economic environmental and social aspects of a geographic attribution i e isolated regional or country of an ret to gain insights on the associated tradeoffs in the case study of the azores islands portugal the regional geographic attribution of an ret captures the best of all three tradeoffs

the economics of degrowth economic degrowth is ecologically desirable and possibly inevitable but under what conditions can it become socially sustainable how can we have full employment and economic stability without growth what will happen to public spending and to public debt how would production be organised in a degrowing economy and under what plausible socio political conditions could such grand changes happen standard economic theories and models ignore these questions for them economic growth is an axiomatic necessity this article reviews recent contributions in the economics of degrowth and identifies research avenues for ecological economists

review of renewable energy investment and financing in china status mode issues and countermeasures abstract with the support of national policies china s renewable energy generation industry has experienced a rapid development period and entered the world forefront level especially in the aspects of installed capacity and speed of newly installed capacity however with the rapid development of renewable energy the power generation industry is facing more and more challenges particularly in investment and financing as for wind power industry there are also some problems such as single financing channels blindness of projects investment and so on which will result in financing difficulties for some advanced projects in addition the problems for the investment of photovoltaic pv power generation leads to vicious competition and a tumble in international market thus the overcapacity of china s entire pv industry emerges generally speaking the renewable energy industry is facing a seemingly contradictory predicament of funding deficiencies and blind investment which is derived from the government centered renewable energy investment and financing this government centered mode has promoted the development of renewable energy industry in the early stage but it cannot be adapted to the requirements of sustainable development in view of these the problems of renewable energy investment and financing are deeply studied in this paper this paper proceeds as follows firstly the overview of the development of china s renewable energy industry is briefly introduced secondly the status quo of china s renewable energy investment and financing is explored in detail based on overview of the following five perspectives investment situation investment and financing bodies investment and financing means sources of funding and financing channels secondly the patterns and characteristics of renewable energy financing are summarized and a comparative analysis of wind power and photovoltaic power generation financing means is carried out finally renewable energy investment and financing issues are discussed and further feasible proposals are put forward in all this paper is of great significance in the sustainable and healthy development of china s renewable energy

intra generational equity and sustainable welfare a time series analysis for the uk and sweden this paper discusses the importance of intra generational equity to sustainable development it outlines a number of methodologies for measuring income inequality in the economy and presents several possible ways of incorporating the impact of distributional effects into measures of welfare in the economy the authors highlight in particular an index developed by atkinson atkinson a b 1970 distributive politics and economic growth q j econ may 465 490 based on the social welfare model this method possesses two main advantages over other methods firstly it is expressed directly in terms of social well being secondly value judgements incorporated into the measure are made explicit through the parameter o which expresses society s degree of aversion to income inequality the paper calculates the value of the atkinson index for two case study countries sweden and the uk between 1950 and 1996 for a central estimate of o0 8 the results show that the welfare loss due to inequalities in the distribution of income varied between 5 and 10 for sweden and between 6 and 14 for the uk with the higher values coming towards the end of the period the paper explores the sensitivity of these results to changes in the value of o for the case of the uk and discusses the relevance of the work to the measurement of sustainable welfare 2000 elsevier science b v all rights reserved

portfolio applications in electricity markets review private investor and manager perspective trends abstract the private sector plays a major role in the expansion and operation of power systems in most countries especially those running liberalized electricity markets policymakers have the task of inducing private agents through their regulatory designs to make decisions that point toward social welfare maximization conversely it is a task of private agents to protect themselves against the risks of the sector including regulatory risks international fuel price uncertainty climate change policies natural resource availability electricity demand uncertainty co2 clearance prices etc instead of hiding all of these risks within the total project costs and losing competitiveness private agents can use diversification as a strategy to deal with them this paper presents a review of the main applications voids and challenges of portfolio optimization for two key agents of the private sector investors and managers the problem of the investor is to design a technology portfolio to invest in that maximizes its expected returns and limits risks while the manager has to design a portfolio of financial physical instruments long term contracts futures etc to sell buy electricity and hedge against price risks we have found two fundamental issues in the literature the first and most important is excessive confidence in historical data and statistical analysis for predicting future price behavior for a changing future in detriment of more structural analysis structural analysis can include particularities of modern power systems such as future transmission changes congestion operational constraints ramps new entrants new technologies and new demand grow patterns that cannot be taken into account by simply analyzing price historical values the second is the omission of renewable complementarities which is a proven characteristic of dispersed renewable plants that may have important risk mitigation effects although it has largely been ignored in portfolio analysis due to insufficient data modeling limitations and computational complexity

valuation of power plants abstract in this paper we develop continuous time stochastic control models for valuation and operation of three stylised types of power plants in an electricity market a renewable plant a conventional plant and a storage plant examples of these types of power plants are respectively wind turbines gas fired generation units and hydroelectric facilities we demonstrate how to derive analytical or quasi analytical solutions in spite of many details in modeling in particular we model uncertainty in electricity prices and in production input output when it is relevant for the technology considered input output is assumed to follow a diffusion process whereas the price process may include jumps our models account for special characteristics of the technologies including a non normal distribution of wind speeds as well as start up and shut down costs of thermal units we use our models to assess the impact of conjectured future market conditions such as increasing average price level price volatility and correlation between renewable production and electricity prices

interactions between the power and green certificate markets abstract the current trend of liberalising the power markets is combined with ambitious deployment plans for power production based on renewable energy supplies a new policy scheme to ensure this extension has been developed in the form of a green certificate system with a politically determined target of deployment in such a system producers of renewably based electricity receive tradable certificates in proportion to the electricity they produce the producer can thereby sell these certificates and receive additional revenue apart from the power price this paper studies the price and consumption effects of such a system with a simple model we show that the effects are ambiguous this ambiguity is caused by the interaction between the two markets therefore the green certificate system is difficult to manage if the state has parallel energy targets such as a desired deployment of renewably based energy and a stabilisation or reduction of the energy consumption in addition this complicates the regulation through a deployment target of renewably based power production as the regulator has to be aware of the different effects which follow a specific target until now these effects have not been considered in the analyses of the green certificate system when introducing the system even though it might have considerable consequences for the success of the system

regulation and corporate investment policy in a previous paper it was shown that the traditional rule that the allowed return on the equity of a regulated firm should be set equal to its cost of equity capital was conceptually deficient 2 this deficiency arises because the cost of equity capital of a regulated firm depends upon its risk which depends in turn upon the regulatory policy that will be followed in the future including the allowed rate of return it was argued therefore that this traditional rule should be replaced by the requirement that the regulatory policy be consistent a consistent regulatory policy achieves what the traditional rule only attempts it ensures that at the time of a regulatory hearing the market value of the firm equity is equal to the equity financed portion of the rate base to devise a consistent regulatory policy it is necessary to have a valuation model which takes explicit account of regulatory policy such a model was developed in the above mentioned paper in this paper we generalize the earlier valuation model so that the investment policy of the regulated firm is determined by the value maximizing decisions of the management instead of being taken as exogenous to the extent that investment policy is discretionary its endogeneity must be taken into account in devising a consistent regulatory policy and this is made possible by the generalized model in reality it seems unclear to what extent the investment policies of regulated firms are predetermined by the requirement that they meet demand and to what extent they are discretionary since the model presented here easily accommodates constraints on the investment policy it is the more appropriate model so long as there exists any element of discretionary investment behaviour and permits a more adequate approach to the determination of consistent regulatory policies with discretionary investment policy an important consequence of any particular consistent regulatory policy is the investment policy it induces in section 4 we show how the value maximizing investment policy is affected by the choice of regulatory policy on the other hand regulated firms are wont to argue that their investments are in the main predetermined by demand and must be undertaken regardless of their profitability this putative lack of discretion it is maintained means that the appropriate allowed rate of return is higher than would otherwise be the case in section 4 also we evaluate the strength of this consideration by comparing the allowed rate of return under consistent regulatory policies when investment policy is and is not discretionary section 5 shows briefly how the analysis can be extended to account for the effect of debt in the capital structure

the effect of sample size on european union s renewable energy investment drivers abstractmacroeconomic modelling results based on relatively varying sample sizes may lead to incoherent results such effects have not been adequately understood in the renewable energy literature regarding the european union eu this study focuses on the comparison of results obtained for renewable energy investment drivers for solar and wind energy investments on different samples of eu countries including all eu 27 former eu 15 and 11 high renewable investment eu countries the study used a random effect panel data modelling approach over the period 1995 2011 for studying the impact of the levelized cost regulation perception carbon emissions and climatic condition on wind and solar investments over the three samples the results demonstrate the importance of trustable regulation schemes to ensure that regulation will not have a significant negative effect on investment showing also the need to further extend the model to include support schemes as fundamental drivers for investment

simulating the new british electricity market reform abstract the british government is implementing fully its novel electricity market reform gb emr its objective in line with european directives aims at replacing existing nuclear and coal plant with low carbon systems to deliver reliable and affordable power though the gb emr has proposed several policy instruments for meeting its objectives and the academic literature has discussed the main issues no known report includes a comprehensive and dynamic simulation exercise that assesses the extent of this profound and important initiative this paper presents a system dynamics model that supports analysis of long term effects of the various policy instruments that have been proposed in the gb emr focusing on environmental quality security of supply and economic sustainability using lessons learned from simulation the paper concludes that effectively achieving the gb emr objectives requires this comprehensive intervention or a similar one that includes the promotion of low carbon electricity generation through the simultaneous implementation of various direct and indirect incentives such as a carbon price floor a feed in tariff fit and a capacity mechanism

is piketty s second law of capitalism fundamental in capital in the twenty first century thomas piketty uses what he calls the second fundamental law of capitalism to predict that capital to income ratios are poised to increase dramatically as economies growth rates fall during the twenty first century this law states that in the long run the capital to income ratio equals s g where s is the economy s saving rate and g its growth rate we argue that this law rests on a theory of saving that is hard to justify first it holds the net saving rate constant as growth falls driving the gross savings rate to one as growth goes to zero second it is inconsistent with both the textbook growth model and the theory of optimal saving in both of these theories the net saving rate goes to zero as growth goes to zero third both of these theories provide a reasonable fit to observed data on gross and net saving rates and growth rates in cross country panel data whereas piketty s does not finally contrary to piketty s second law both of these theories predict that capital to income ratios increase only modestly as growth falls

pros and cons of exposing renewables to electricity market risks a comparison of the market integration approaches in germany spain and the uk abstract the article examines how renewable electricity res e producers are integrated into the electricity market under the support legislations and regulatory frameworks of germany spain and the uk focus is on wind power which faces the highest market integration challenge of all res e the analysis shows that the three countries follow contrasting approaches of exposing res e producers to the market risks of forward electricity markets balancing markets and system planning requirements risk exposure is highest in the uk and lowest in germany from a policy maker s perspective there is a trade off between a high risk and a low risk approach when res e face high market risks a higher level of financial support is required to stimulate res e development than in a low risk environment but the exposure to market risks may also give an incentive to make efficient use of the respective market thus limiting the indirect costs to society the special characteristics of wind energy however put natural limits to the response of wind power plants to market prices and locational price signals and will increasingly influence electricity markets and grid infrastructure these interdependencies should be recognised in the design of res e policies and market regulations

short term generation asset valuation a real options approach this paper discusses using real options to value power plants with unit commitment constraints over a short term period we formulate the problem as a multistage stochastic problem and propose a solution procedure that integrates forward moving monte carlo simulation with backward moving dynamic programming we assume that the power plant operator maximizes expected profit by deciding in each hour whether or not to run the unit that a certain lead time for commitment and decommitment decisions is necessary to start up and shut down a unit and that these commitment decisions once made are subject to physical constraints such as minimum uptime and downtime we also account for the costs associated with starting up and shutting down a unit last we assume that there are hourly markets for both electricity and the fuel used by the generator and that their prices follow ito processes using numerical simulation we show that failure to consider physical constraints may significantly overvalue a power plant

financial risks for green electricity investors and producers in a tradable green certificate market this paper analyzes financial risks in a market for tradable green certificates tgc from two perspectives existing renewable producers and potential investors in new renewable electricity generation capacity the equilibrium pricing mechanism for a consumer based tgc market is described and a market with wind turbines as the sole renewable technology is analyzed in this framework tgc prices and fluctuations in production from wind turbines will be negatively correlated and as a result tgc price fluctuations can actually help decrease the total financial risk based on this recognition analytical expressions for revenue variance minimizing trading strategies are derived and an analysis of the demand and supply for financial hedging is used to show that forward contracts will be traded at a risk premium

renewable energy investments under different support schemes a real options approach abstract this paper adopts a real options approach to analyze investment timing and capacity choice for renewable energy projects under different support schemes the main purpose is to examine investment behavior under the most extensively employed support schemes namely feed in tariffs and renewable energy certificate trading we consider both multiple sources of uncertainty under each support scheme and uncertainty with respect to any change of support scheme and we obtain both analytical when possible and numerical solutions in a nordic case study based on wind power we find that the feed in tariff encourages earlier investment nevertheless as investment has been undertaken renewable energy certificate trading creates incentives for larger projects in our baseline scenario and taking the fixed feed in tariff as a base the revenue required to trigger investments is 61 higher with renewable certificates at the same time investment capacity is 61 higher

complementary system perspectives in ecological macroeconomics the example of transition investments during the crisis globally societies are facing a number of interrelated environmental economic and social crises this paper is intended to contribute to the development of an ecological macroeconomics that addresses these multiple crises in combination insights from different research communities will be included in this effort taking an ecological economic understanding of sustainability as the point of departure and inspired by systems thinking it is discussed which economic sub systems should be in focus for sustainability transitions and whether relevant guides for sustainability can be formulated for these systems in particular the focus is on systems that are decisive for resource consumption and pollution although their influence on these is indirect a simple typology of sub systems is suggested and applied in relation to an example that highlights the importance of the interplay between macroeconomic provision and distribution systems the example concerns investments in sustainability transitions of provision systems and demonstrates the complexities of implementing such transformations during the economic crisis it also addresses the need for ecological macroeconomics to develop a third position beyond austerity policies and keynesian approaches

real options analysis for renewable energy investment decisions in developing countries abstract renewable energy projects in developing countries should provide clean energy supply as well as support sustainable economic development to this end risks arising from uncertainties such as rapidly changing technologies and host government conditions should be carefully addressed however traditional methods for economic assessment are not adequate to support decision making regarding investments in renewable energy this paper proposes a real options analysis framework as a tool to assess renewable energy investment in developing countries a case study involving a hydropower project in indonesia was conducted to validate and verify the proposed framework this framework is expected to help host countries and investors assess renewable energy projects with high volatility and risk

valuing investment decisions of renewable energy projects considering changing volatility abstract volatility is an important parameter when evaluating investments using the real options method for renewable energy investments the volatility of cash flow continuously changes because as new information and knowledge are gathered there is less foreseen variation this paper proposes an extended recombining trinomial tree model where the changing volatility is used to generate transition probabilities the changing volatility is generated using a consolidation process where multiple random variables including the market price of electricity carbon price and lending rate are integrated into a low dimension stochastic process a two factor learning curve is used to model the changes of investment cost we apply the proposed model to analyze solar photovoltaic pv power generation investment in china the results show volatility with changing feature compared with constant volatility changing volatility may advance investment decisions and change the project value complete grid parity policy in the solar pv industry is infeasible because the opportunity cost brought by the option of delaying cannot be offset the changing volatility may produce a lower and equally effective subsidy level compared with constant volatility a carbon emission trading scheme is helpful in advancing investments in renewable energy which is reflected in improvements in project value advancements in investment decisions and reductions in the required subsidy level

a compound option model of production and intermediate inventories this article extends the option approach to valuing real assets by modeling the firm as a two stage process with bounded output rates in which the output of the first stage may be held as work in process in this setting the real asset becomes a compound option which if exercised gives the option to finish the work in process and sell the output as its final payoff the existence of intermediate inventories may arise as an optimal investment strategy for exploiting possible future price increases the framework allows us to analyze the effect of uncertainty on output rates and the effect of interest rates changes on inventory levels copyright 1993 by university of chicago press

green investment under time dependent subsidy retraction risk abstract driven by ambitious targets to reduce greenhouse gas emissions many countries have introduced support schemes to accelerate investments in renewable energy however in recent years experience showed that over time retraction of support schemes becomes more likely this has a severe effect on investment behaviour in this paper we study the effect of a potential subsidy retraction of a feed in tariff fit on investment in renewable energy capacity where we explicitly account for the fact that the likelihood of policy retraction may change over time we show that the range of fits for which it is optimal to invest immediately decreases the longer a subsidy has been in place if the fit offered is too small and or the subsidy has been installed too long ago it is optimal for the firm to wait with investment until the subsidy is eventually retracted and free market conditions prove to be profitable enough furthermore we show that whether a policy maker aiming at accelerating investment prefers investors to consider retraction risk to be time dependent or not depends on how much time has passed since the subsidy has been introduced at the moment the investor considers investment for the first time

ecological macroeconomics an application to climate change ecological economics has not paid sufficient attention to the macroeconomic level both in terms of theory and modeling yet key topics debated in the field of ecological economics such as sustainable consumption reduction in working time the degrowth debate the energy exergy link and the rebound effect require a holistic and macro perspective while this deficiency has been identified before and keynesian economics has been generally suggested as a potent vehicle to establish economic system s thinking very little concrete theorizing and practical suggestions have been put forward we give further credence to this suggestion and demonstrate the value of tackling key concerns of ecological economics within a keynesian growth framework contextualized by an application to climate change we suggest that policy relevant recommendations need to be based on a consistent view of the macroeconomy we end with laying out key building blocks for a keynesian model framework for an ecological macroeconomics authors abstract

waiting to invest investment and uncertainty the textbook analysis that accepts all projections with positive net present values as positive is quite generally wrong the ability to delay a project means that almost every project competes with itself postponed with uncertain interest rates even the simplest of projects has an option value the effect of interest rate uncertainty on the optimal delay of investment is sizable this implies that the rate of aggregate investment will depend on both the level of the real interest rate and the degree of interest rate uncertainty furthermore it is not necessarily true that investment rises with a fall in interest rates copyright 1992 by university of chicago press

governance and renewable energy investment in mena countries how does trade matter abstract the middle east and north africa mena countries have recently developed renewable energy re markets however their rate of investment in renewable energy remains small compared to other regions in the world despite their relatively abundant endowments particularly in wind and solar while the literature identifies some barriers to investment in renewable energy we assume that the investment of mena countries could be impeded by specific governance factors furthermore we consider recent literature showing that trade openness reduces the negative effects of weak governance in this paper we empirically investigate the link between governance openness and renewable energy investment in the mena region using panel data for 15 mena countries over the period 1996 2013 our results prove that high institutional quality is associated with re investment in mena countries in addition this relationship seems to be conditional on the trade regime our results are robust to several measures of renewable energy investment and governance as well as to an alternative econometric set up

when outcomes are the reflection of the analysis criteria a review of the tradable green certificate assessments abstract the tradable green certificates tgc framework is a prevalent policy support scheme enacted to stimulate investments in electricity from renewable energy sources res e in several countries including sweden and norway the tgc framework is currently under reevaluation in this process academic literature plays a crucial role in reflecting the outcomes of this policy framework the outcomes however are often limited by the analysis criteria which reflect what has been accounted for or disregarded when assessing the performance of the tgc framework the analysis criteria also stress what is considered as a successful outcome given the importance of such criteria this paper presents an extensive and systemic literature review of academic publications assessing the performance of the tgc framework the findings are to provide an overview of the publications analysis criteria and outline their outcomes we also provide descriptive statistics for the publications and examine the average citation record of the publications that use various analysis criteria in order to explore their relative impact on later studies these findings can help policymakers put the assessments into perspective when reevaluating a country s tgc system they also suggest several intriguing directions for future studies in this field

using the binomial model for the valuation of real options in computing optimal subsidies for chinese renewable energy investments abstract for the valuation and implementation of renewable energy investments the issue of providing private investors with a financial incentive to accelerate their investment is frequently a critical component we apply this principle to the chinese context this paper focuses on using the binomial model to compute the required subsidy that would incentivize investors to optimal immediate exercise of the american style option embedded at the launching phase of the projects for chinese renewable energy investments in addition this paper also aims at contrasting the binomial model with the more laborious monte carlo simulation previously used to evaluate the proper subsidy by using the same data but a different method and reducing the number of uncertain factors to one it is suggested these two methods have similar outcomes but the binomial method requires substantially less computation and is more self explanatory this paper thus provides government with an easy to implement alternative way to compute the required subsidy

choosing among alternative discrete investment projects under uncertainty abstract irreversible choice among mutually exclusive projects under output price uncertainty is considered increasing returns are shown to make it optimal to wait for the largest project greater uncertainty of the price process makes it optimal to wait for a larger project

evaluating the power investment options with uncertainty in climate policy abstract this paper uses a real options approach roa for analysing the effects of government climate policy uncertainty on private investors decision making in the power sector it presents an analysis undertaken by the international energy agency iea that implements roa within a dynamic programming approach for technology investment choice case studies for gas coal and nuclear power investment are undertaken with the model illustrative results from the model indicate four broad conclusions i climate change policy risks can become large if there is only a short time between a future climate policy event such as post 2012 and the time when the investment decision is being made ii the way in which co 2 and fuel price variations feed through to electricity price variations is an important determinant of the overall investment risk that companies will face iii investment risks vary according to the technology being considered with nuclear power appearing to be particularly exposed to fuel and co 2 price risks under various assumptions and iv the government will be able to reduce investors risks by implementing long term say 10 years rather than short term say 5 years climate change policy frameworks contributions of this study include 1 having created a step function with stochastic volume of jump at a particular time to simulate carbon price shock under a particular climate policy event 2 quantifying the implicit risk premium of carbon price uncertainty to investors in new capacity 3 evaluating carbon price risk alongside energy price risk in investment decision making and 4 demonstrating roa to be a useful tool to quantify the impacts of climate change policy uncertainty on power investment

real option valuation in renewable energy literature research focus trends and design abstract in light of intensive development of the renewable energy re sector a growing number of academic papers address the complexity of re investment planning and valuation to take account of the high risk profile and irreversibility of re investments researchers have resorted to sophisticated real options ro approaches that enable flexibility to be incorporated into project design in the face of an uncertain environment the variety of different frameworks and models adopted as well as a lack of aggregated analysis of the field suggest a need for a critical review of ro methodology and design in re assessment this study describes the research focus trends and design found in contemporary academic literature devoted to re valuation with a ro approach particular attention is given to ro in project and policy design the results give a comprehensive picture of existing research on the topic thus providing researchers with a solid foundation for further study and indications of directions for future development furthermore the findings provide policymakers and project planners with valuable insights into key aspects of re project and policy design

sustainable transmission planning in imperfectly competitive electricity industries balancing economic and environmental outcomes abstract we explore the role of a transmission system operator tso that builds a transmission line to accommodate renewable energy in order to lower emissions as required by government policy in contrast to central planning a tso in a deregulated electricity industry can only indirectly influence outcomes through its choice of the transmission line capacity via a bi level model we show that this results in less transmission capacity and with limited emissions control in a perfectly competitive industry vis a vis a benchmark centrally planned system a carbon charge on industry that fully accounts for the cost of pollution damage leads to a perfect alignment of incentives and maximised social welfare only under perfect competition by contrast a carbon charge may actually lower social welfare under a cournot oligopoly as the resulting reduction in consumption facilitates the further exercise of market power

optimal design of feed in tariffs to stimulate renewable energy investments under regulatory uncertainty a real options analysis feed in tariffs fits are widely used as policy instruments to promote investments in renewable energy sources res while fits are often regarded as the most effective res support scheme regulators around the world continuously review their fit schemes in the light of budget constraints and evolving policy goals we assess the impact of adjustments to fit schemes by quantifying the relationship between fit levels i e the guaranteed amount paid per quantity of electricity produced and the propensity to invest in res through a regime switching model we quantify the impact of regulatory uncertainty induced by regulators considering moves from a fit scheme to a more market oriented regulatory regime our focus is on market independent fixed fits the dominant scheme in europe receiving increasing attention globally we find that res investment projects under market independent fixed fit schemes become now or never decisions and derive fit thresholds required to induce investment we show that uncertainty regarding future regulatory regimes delays or even reduces investment activity for fit levels near electricity market prices and high probabilities of an imminent regime switch

the relation between forward prices and futures prices abstract this paper consolidates the results of some recent work on the relation between forward prices and futures prices it develops a number of propositions characterizing the two prices these propositions contain several testable implications about the difference between forward and futures prices many of the propositions show that equilibrium forward and futures prices are equal to the values of particular assets even though they are not in themselves asset prices the paper then illustrates these results in the context of two valuation models and discusses the effects of taxes and other institutional factors

does slow growth lead to rising inequality some theoretical reflections and numerical simulations this paper explores the hypothesis most notably made by french economist thomas piketty that slow growth rates lead to rising inequality if true this hypothesis would pose serious challenges to achieving prosperity without growth or meeting the ambitions of those who call for an intentional slowing down of growth on ecological grounds it would also create problems of social justice in the context of a secular stagnation the paper describes a closed demand driven stock flow consistent model of savings inequality and growth in a macroeconomic framework sigma with exogenous growth and savings rates sigma is used to examine the evolution of inequality in the context of declining economic growth contrary to the general hypothesis we find that inequality does not necessarily increase as growth slows down in fact there are certain conditions under which inequality can be reduced significantly or even eliminated entirely as growth declines the paper discusses the implications of this finding for questions of employment government fiscal policy and the politics of de growth

feed in subsidies taxation and inefficient entry we study energy markets with dirty production and lumpy entry costs of clean production renewables for intermediate entry costs markets yield inefficient production and inefficient entry a mix of three popular regulatory instruments polluter taxation feed in subsidies for renewables and consumption taxation cannot correct these market failures for larger entry costs the instruments are imperfect because they affect marginal incentives whereas entry is a lumpy fixed cost problem whenever the first best is implementable feed in subsidies and consumption taxes are redundant the second best requires feed in subsidies or consumption taxes in addition to a pollution tax and overshoots first best levels given production levels the instruments do not affect the regulator s budget

an analysis of a forward capacity market with long term contracts we analyze the effectiveness of a forward capacity market fcm with long term contracts in an electricity market in the presence of a growing share of renewable energy an agent based model is used for this analysis capacity markets can compensate for the deteriorating incentive to invest in controllable power plants when the share of variable renewable energy sources grows but may create volatile prices themselves capacity markets with long term contracts have been developed e g in the uk to stabilize capacity prices in our analysis a fcm is effective in providing the required adequacy level and leads to lower cost to consumers and more stable capacity prices as compared to a yearly capacity market in case of a demand shock a fcm may develop an investment cycle but it still maintains security of supply its main effect on the power plant portfolio is more investment in peak plant

optimal feed in tariff for solar photovoltaic power generation in china a real options analysis abstract the feed in tariff policy is widely used to promote the development of renewable energy china also adopts feed in tariff policy to attract greater investment in solar photovoltaic power generation this study employs real options method to assess the optimal levels of feed in tariffs in 30 provinces of china the uncertainties in co 2 price and investment cost are considered a method that integrates the backward dynamic programming algorithm and least squares monte carlo method is used to solve the model the results demonstrate that the feed in tariffs of 30 provinces range from 0 68 rmb kwh to 1 71 rmb kwh and the average level is 1 01 rmb kwh on this basis we find that the levels of sub regional feed in tariff announced in 2013 are no longer appropriate and should be adjusted as soon as possible we have also identified the implications of technological progress and carbon emission trading schemes as well as the importance of strengthening electricity transmission it has been suggested that the chinese government takes diverse measures including increasing research and development investment establishing and improving a nationwide carbon emission trading scheme and accelerating the construction of electricity transmission infrastructure to reduce the required feed in tariff and promote the development of solar photovoltaic power generation

investment decisions with finite lived collars abstract the duration of most collar arrangements provided by governments to encourage early investment in infrastructure renewable energy facilities or other projects with social objectives are finite not perpetual we extend the previous literature on collar style arrangements by providing an analytical solution for the idle and active values as well as the investment triggers for projects where collars are either finite lived or retractable what is the difference between these types of arrangements with their perpetual counterpart lots including different vega signs and substantially different values for different current price levels often finite and retractable collars justify earlier investment timing than perpetual collars in general we demonstrate that the finite lived and retractable versions have a significant impact on optimal behavior relative to the perpetual case an important consideration when negotiating the floors ceilings and duration or signalling the expected duration of a finite or a retractable collar is the current price level of the output and its expected volatility over the life of the contract

emissions trading and investment decisions in the power sector a case study in finland abstract organizations which consider investment in or divestment of power production licences capacity within the european community are exposed to the impacts of the european union emission allowance trading scheme eu ets in this paper the consequences of the eu ets on investment decisions are explored in a country specific setting in finland first we review the general mechanisms through which the eu ets influences size timing and cashflows of an investment next we discuss the projected changes in finnish power producers investment environment and examine the financial impacts due to the eu ets on a case investment decision a hypothetical condensing power plant 250 mwe the standard discounted cash flow dcf analysis is extended to take into account the value of two real options the option to wait and the option to alter operating scale in a quantitative investment appraisal the impact of emissions trading not only depends on the expected level of allowance prices but also on their volatility and correlation with electricity and fuel prices the case study shows that the uncertainty regarding the allocation of emission allowances is critical in a quantitative investment appraisal of fossil fuel fired power plants

is now a good time for iowa to invest in cellulosic biofuels a real options approach considering construction lead times abstract the revised renewable fuel standard of the u s mandates a production of 16 billion gallons per year by 2022 from cellulosic biofuels iowa rich in agricultural residues like corn stover is a major player in contributing to the fulfillment of the cellulosic biofuels mandate is it a good time for iowa to start investing in cellulosic biofuels using a fast pyrolysis facility as an example we present a real options approach for valuing the investment of a new technology for producing cellulosic biofuels subject to construction lead times and uncertain fuel price we conduct a case study on iowa in which the decision maker finds the optimal investment time for the fast pyrolysis facility subject to production and distribution constraints our result indicates that the project is profitable if the facility is invested now but could be more profitable if invested later namely now it is not the optimal time for iowa to start constructing the fast pyrolysis facility we also find that the impact of the lead time on the project value is too significant to overlook the profitability of the project is sensitive to the outlook of fuel price if the future retail fuel price drops just 7 lower than forecasted by the energy information administration the investment may not be profitable the impact of the technology improvement production yield and biomass feedstock price is also analyzed using regression

optimal pooling of renewable energy sources with a risk averse approach implications for us energy portfolio abstract tapping into a large amount of renewable generation considering the inherent variability of renewable energy sources res can greatly increase the risk of supply and demand imbalances in electric power delivery one of the major components of this risk is the intermittency of both wind and solar power generation in this paper we show that by strategically planning for geographical and technological diversification of renewable generation capacity it is possible to reduce such risk in a res only us energy portfolio we consider wind and solar as the sole sources of generation and use risk averse stochastic optimization with conditional value at risk cvar to optimize energy generation locations and capacities in an idealized case study the optimal res portfolios demonstrate a significant improvement in generation profile compared to non pooled or non optimized alternatives this confirms that with smart policy planning one can push the limits of the risk of imbalances in res only portfolios within continental united states and highlights the need for system wide thinking when designing a large scale energy portfolio

the paradox effects of uncertainty and flexibility on investment in renewables under governmental support abstract given that companies have the flexibility to decide about size and timing of a renewable electricity investment the existence of four paradox effects is proven only the type but not the amount of governmental support has an influence on the optimal capacity of a renewable electricity generating system a decrease of governmental support over time may result in higher capacities of renewables installed on an industry level at least on the short term likewise higher uncertainty may encourage an expansion of these capacities in contrast technological progress may hamper the expansion of capacities finally these four paradox effects are exemplified in a germany based case study regarding a photovoltaic project

valuing chinese feed in tariffs program for solar power generation a real options analysis newhuadu business school research fund china sustainable energy program g 1305 18257 national social science foundation of china 12zd059 ministry of education 10gbj013

renewable generation expansion under different support schemes a stochastic equilibrium approach abstract following the deregulation of electricity markets a current challenge of policy makers is to facilitate the transition to a sustainable power system at the highest welfare for society in this paper we investigate the efficiency of different support schemes such as a feed in tariff a feed in premium and tradable green certificates with respect to incentivizing the required investments in renewable generation we consider a number of generation expansion problems and formulate stochastic equilibrium models that account for uncertainty in demand and renewable supply the risk aversion of investors and the competitiveness of the market the problem of the policy maker is formulated as a mathematical program with equilibrium constraints mpec and as a non linear complementarity problem ncp for the feed in schemes and the certificate market respectively our models are solved for a small illustrative example and a larger case study based on the danish power system the results confirm that the main driver for the optimal choice of renewable support scheme is the aversion of power producers towards price and volume risk while the competitiveness of the market rarely affects such choice

the value of green energy under regulation uncertainty 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