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Subsidies for Renewable Energy Facilities under Uncertainty
Adkins, Roger Paxson, D.
Adkins, Roger
Paxson, D.
Publication Date
23/02/2016
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© 2016 Wiley. This is the peer reviewed version of the following article: Adkins R and Paxson D (2016) Subsidies for Renewable Energy Facilities under Uncertainty. The Manchester School. 84(2): 222-250, which has been published in final form at http://dx.doi.org/10.1111/manc.12093. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
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openAccess
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29/09/2014
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Abstract
We derive the optimal investment timing and real option value for a facility with price and quantity uncertainty, where there might be a government subsidy proportional to production quantity. Where the subsidy is proportional to the multiplication of the price and quantity, dimensionality can be reduced. Alternatively, we provide quasi-analytical solutions for different quantity subsidy arrangements: permanent (policy is certain); retractable; suddenly permanent; and suddenly retractable. Whether policy uncertainty acts as a disincentive for early investment depends on the type of subsidy arrangement. The greatest incentive for early investment is an actual retractable subsidy, a ‘flighty bird in hand’.
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Accepted manuscript
Citation
Adkins R and Paxson D (2016) Subsidies for Renewable Energy Facilities under Uncertainty. The Manchester School. 84(2): 222-250.
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