How does uncertainty in renewable energy policy affect decisions to invest in wind energy?

Derya Eryilmaz, Frances R. Homans

Research output: Contribution to journalArticle

11 Scopus citations

Abstract

This paper examines the impacts of uncertainties in U.S. renewable energy policy on the investment decisions of renewable electricity producers. We develop and solve a dynamic optimization model to understand how investment in wind energy depends on market and policy uncertainties. These uncertainties include the federal government's uncertain decision about the continuation of the Production Tax Credit (PTC) policy and the stochasticity of prices in the market for Renewable Electricity Credits (RECs). Our results show that investors require higher REC prices to invest without the PTC policy. Results contribute to our understanding of how policy uncertainty affects the profitability threshold required for investors to commit to renewable energy projects.

Original languageEnglish (US)
Pages (from-to)64-71
Number of pages8
JournalElectricity Journal
Volume29
Issue number3
DOIs
StatePublished - Apr 2016

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Keywords

  • Energy policy
  • Investment
  • Real options
  • Uncertainty
  • Wind energy

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