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Title:Comparing Feed-In-Tariffs and Renewable Obligation Certificates - a Real Option Approach PDF Logo
Authors:Mennel, Tim
Scatasta, Sara
Issue Date:2010
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Environmental Policy: Incentives and Instruments F18-V3
Abstract:The increase of the share of renewable energy in total energy production is a stated goal of environmental and industrial policy in many developed countries. Governments adopt regulation to support the investment into renewable energy infrastructure, in particular in power generation. Two main policy instruments emerge: renewable quotas and feedin-tariffs. Quota systems, such as the British ROCs, oblige an electricity producer to certify that a fixed share of his electricity is 'green', i.e. generated from renewable sources. Feed-in-tariffs, such as the German EEG tariffs, guarantee a certain, fixed price for 'green' electricity, depending on the technology. The decisive difference between the instruments is the allocation of price risk. The paper presents a real option framework to study the effect the instruments on investment and innovation of renewable energy plants. The modelled is calibrated on data for German Wind power plants. We find that the propensity to invest is higher under a quota system. So the presence of price risk spurs technological innovation.
Subjects:Renewable Energy
Investment support policy
Real Options
JEL:Q28
R48
H23
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie

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