CICERO - Center for International Climate Research

Revision of renewable-electricity support schemes: How policy uncertainty affects investments

Kristin Linnerud, Trine Krogh Boomsma

Renewable-electricity support schemes are applied in almost 100 countries. Using EU as an example, these support schemes can be divided in three categories: a fixed price replacing the electricity price (e.g., feed-in tariffs), a fixed subsidy on top of the stochastic electricity price (e.g., feed-in premium) or a combination of two stochastic prices (e.g., tradable green certificates). A more market-oriented scheme will result in a better working power market. Using a real options approach we show that: 1) risk difference between feed-in tariffs on one side and feed-in premium and tradable green certificates on the other is not so big, 2) an expected transition to a more market oriented scheme can result in smooth changes in investment rates in contrast to an unexpected transition, and 3) this will be the case even though the revision affects old and new installations alike.

More details

  • Year: 2015
  • Language: English