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Specifying An Efficient Renewable Energy Feed-in Tariff
- Source :
- Farrell, N, Devine, M T, Lee, W T, Gleeson, J P & Lyons, S 2017, ' Specifying An Efficient Renewable Energy Feed-in Tariff ', The Energy Journal, pp. 53-75 . https://doi.org/10.5547/01956574.38.2.nfar
- Publication Year :
- 2017
-
Abstract
- This paper derives efficient pricing formulae for renewable energy Feed-in Tariff (FiT) designs that incorporate exposure to uncertain market prices by using option pricing theory. Such FiT designs are presented as a means to delineate market price risk amongst investors and policymakers when designing renewable energy support schemes. Sequential game theory provides the theoretical framework through which we model the strategic interaction of policymakers and investors during policy formulation. This model is solved using option pricing theory when a FiT is comprised of market prices combined with a guaranteed element. This solution also allows for an analytical formulation of the policy cost of subsidisation. Partial derivatives characterise sensitivity of policy cost and investor remuneration to deviations in market conditions beyond those expected. Analytical derivations provide a set of tools which may guide more efficient FiT policy and investment decisions. Numerical simulations demonstrate application for a stylised Irish case study, with a scenario analysis providing further insight into the relative sensitivity of policy cost and investor remuneration under different market conditions.
- Subjects :
- Economics and Econometrics
Renewable energy
Sequential game
020209 energy
Renewable Energy, Feed-in Tariff, Option Pricing, Renewable Energy Support Schemes �
Tariff
02 engineering and technology
7. Clean energy
Microeconomics
0502 economics and business
0202 electrical engineering, electronic engineering, information engineering
Remuneration
Market price
Economics
jel:Q48
SDG 7 - Affordable and Clean Energy
050207 economics
Feed-in tariff
05 social sciences
Market price risk
jel:G13
jel:Q4
jel:Q5
jel:L94
Feed-in Tariff (FiT)
General Energy
Investment decisions
Valuation of options
Rational pricing
Subjects
Details
- Language :
- English
- Database :
- OpenAIRE
- Journal :
- Farrell, N, Devine, M T, Lee, W T, Gleeson, J P & Lyons, S 2017, ' Specifying An Efficient Renewable Energy Feed-in Tariff ', The Energy Journal, pp. 53-75 . https://doi.org/10.5547/01956574.38.2.nfar
- Accession number :
- edsair.doi.dedup.....42c24acdfa31f8df780f6b7eb00f0517