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Specifying An Efficient Renewable Energy Feed-in Tariff
Date Issued
2016-07-19
Date Available
2019-08-14T07:37:15Z
Abstract
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.
Sponsorship
Science Foundation Ireland
Other Sponsorship
Programme for Research in Third-Level Institutions (PRTLI) Cycle 5
European Regional Development Fund (ERDF)
ESRI Energy Policy Research Centre
Type of Material
Journal Article
Publisher
International Association for Energy Economics (IAEE)
Journal
The Energy Journal
Volume
38
Issue
2
Start Page
53
End Page
75
Copyright (Published Version)
2017 International Association for Energy Economics (IAEE)
Language
English
Status of Item
Peer reviewed
ISSN
0195-6574
This item is made available under a Creative Commons License
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