Probability and Statistics Seminar   RSS

29/11/2018, 14:00 — 15:00 — Room P3.10, Mathematics Building
, CEMAT & DM, Instituto Superior Técnico, Universidade de Lisboa

Feed-in Tariff Contract Schemes and Regulatory Uncertainty

This paper presents a novel analysis of four finite feed-in tariff (FIT) schemes, namely fixed-price, fixed-premium, minimum price guarantee and sliding premium with a cap and a floor, under market and regulatory uncertainty. Using an analytical real options framework, we derive the project value, the optimal investment threshold and the value of the investment opportunity for the four FIT schemes. Regulatory uncertainty is modeled allowing the tariff to be reduced before the signature of the contract. While market uncertainty defers investment, a higher and more likely tariff reduction accelerates investment. We also present several findings that are aimed at policymaking decisions, regarding namely the choice, level and duration of the FIT. For instance, the investment threshold of the sliding premium with a cap and a floor is lower than the minimum price guarantee, which suggests that the first regime is a better policy than the latter because it accelerates the investment while avoiding overcompensation.