Feed-in tariff contract schemes and regulatory uncertainty

• Type: Article in International Scientific Journal
• Date: 2020

Authors

Barbosa, L (Author) Other; Nunes, C (Author) Other; Rodrigues, Artur (Author) FEP; Sardinha, A (Author) Other

Journal

Title: European Journal of Operational Research

Vol. 287

Pages: 331-347

ISSN: 0377-2217

Publisher: Elsevier

Indexing

ISI Web of Knowledge - 23 Citations

Scopus - 24 Citations

Other information

Authenticus ID: P-00S-8MY

DOI: 10.1016/j.ejor.2020.04.054

Abstract (EN): 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.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 17