Specifying An Efficient Renewable Energy Feed-in Tariff

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Title: Specifying An Efficient Renewable Energy Feed-in Tariff
Authors: Farrell, NiallDevine, Mel T.Lee, William T.et al.
Permanent link: http://hdl.handle.net/10197/10987
Date: 19-Jul-2016
Online since: 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.
Funding Details: Science Foundation Ireland
metadata.dc.description.othersponsorship: 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)
Keywords: Feed-in Tariff (FiT)Renewable energyMarket price risk
DOI: 10.5547/01956574.38.2.nfar
Language: en
Status of Item: Peer reviewed
Appears in Collections:Electrical and Electronic Engineering Research Collection

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