Understanding the indirect costs of renewable energy using real option theory

Haar, L. and Haar, L. N. (2016) Understanding the indirect costs of renewable energy using real option theory. In: Built Environment Conference, 17 - 19 January 2016, British University in Dubai.

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Item Type:Conference or Workshop contribution (Paper)
Item Status:Live Archive


We examine the economic efficiency of incentive mechanisms used to promote renewable energy as a policy in the European Union (EU). We evaluate the financial performance of renewable investments and employ real option theory to model and analyze their impact in the EU’s liberalized electricity markets. Our analysis covers key European countries and uses five years of the most recent historic electricity price data from 2009 to consider sensitivities in key parameters. As renewable energy policies are presented as public goods to address environmental concerns, we explain how the financial performance of these policies can strike a balance between social costs and private benefits. We consider how markets may incorporate renewable energy without major adjustments. For other regions, our research offers lessons on effectiveness and cost-efficiency in designing renewables incentive schemes.

Keywords:Keywords: Feed-in tariffs, Feed-in premiums, Real-Option Theory, Investor Returns
Subjects:L Social studies > L111 Financial Economics
Divisions:Lincoln International Business School
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ID Code:29559
Deposited On:15 Nov 2017 08:49

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