Now showing 1 - 3 of 3
  • Publication
    Specifying An Efficient Renewable Energy Feed-in Tariff
    (International Association for Energy Economics (IAEE), 2016-07-19) ; ; ;
    Commonly-employed Feed-in Tariff (FiT) structures result in either investors or policymakers incurring all market price risk. This paper derives efficient pricing formulae for FiT designs that divide market price risk amongst investors and policymakers. With increasing deployment and renewable energy policy costs, a means to precisely apportion this risk becomes of greater importance. Option pricing theory is used to calculate efficient FiT prices and expected policy cost when investors are exposed to elements of market price risk. Expected remuneration and policy cost is equal for all FiTs while policymaker and investor exposure to uncertain market prices differs. Partial derivatives characterise sensitivity to unexpected deviations in market conditions. This sensitivity differs by FiT type. The magnitudes of these effects are quantified using numerical examples for a stylised Irish case study. Based on these relationships, we discuss the conditions under which each policy choice may be preferred.
      189Scopus© Citations 12
  • Publication
    When to invest in carbon capture and storage technology: A mathematical model
    We present two models of the optimal investment decision in carbon capture and storage technology (CCS)—one where the carbon price is deterministic (based on the newly introduced carbon floor price in Great Britain) and one where the carbon price is stochastic (based on the ETS permit price in the rest of Europe). A novel feature of this work is that in both models investment costs are time dependent which adds an extra dimension to the decision problem. Our deterministic model allows for quite general dependence on carbon price and consideration of time to build and simple calculus techniques determine the optimal time to invest. We then analyse the effect of carbon price volatility on the optimal investment decision by solving a Bellman equation with an infinite planning horizon. We find that increasing the carbon price volatility increases the critical investment threshold and that adoption of this technology is not optimal at current prices, in agreement with other works. However reducing carbon price volatility by switching from carbon permits to taxes or by introducing a carbon floor as in Great Britain would accelerate the adoption of carbon abatement technologies such as CCS.
      407Scopus© Citations 28
  • Publication
    Optimising feed-in tariff design through efficient risk allocation
    Many Feed-in Tariff designs exist. This paper provides a framework to determine the optimal design choice through an efficient allocation of market price risk. Feed-in Tariffs (FiTs) incentivise the deployment of renewable energy technologies by subsidising remuneration and transferring market price risk from investors, through policymakers, to a counterparty. This counterparty is often the electricity consumer. Using Stackelberg game theory, we contextualise the application of different FiT policy designs that efficiently divide market price risk between investors and consumers, conditional on risk preferences and market conditions. Explicit consideration of policymaker/consumer risk burden has not been incorporated in FiT analyses to date. We present a simulation-based modelling framework to carry this out. Through an Irish case study, we find that commonly employed flat-rate FiTs are only optimal when policymaker risk aversion is extremely low whilst constant premium policies are only optimal when investor risk aversion is extremely low. When both policymakers and investors are risk averse, an intermediate division of risk is optimal. We provide evidence to suggest that the contextual application of many FiT structures is suboptimal, assuming both investors and policymakers are at least moderately risk averse. Efficient risk allocation in FiT design choice will be of increasing policy importance as renewables deployment grows.
      721Scopus© Citations 12