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Defer option valuation and optimal investment timing of solar photovoltaic projects under different electricity market systems and support schemes

Defer option valuation and optimal investment timing of solar photovoltaic projects under different electricity market systems and support schemes
Defer option valuation and optimal investment timing of solar photovoltaic projects under different electricity market systems and support schemes
This paper applies the real options method to analyse the defer option value and optimal investment timing for solar photovoltaic projects in China. The main purpose of this paper is to examine investment behaviours under different market systems and support schemes. This paper further investigates the interaction of technological progress and support schemes. Four scenarios are designed, and the corresponding real options models are established. In the case study, we find that electricity market reform enhances the defer option value in the short term but makes the owners of solar PV projects postpone their investment. Nevertheless, the government can stimulate investment by implementing appropriate support schemes. Additionally, the impacts of different support schemes vary according to the market system. The impacts of feed-in tariffs and price premiums are similar in a regulated market but are different in a free market. The price premium scheme greatly promotes the defer option values in the short term, but the feed-in tariff scheme excels in the long term. A feed-in tariff has a greater impact on reducing the expected execution time and its variance than the price premium. In addition, more attractive support schemes are required when the technological level is improved.
0360-5442
594–610
Cheng, Cheng
9d3214f3-3076-40bd-8d11-d0b9571cec48
Wang, Zhen
af8604e4-250c-4c42-93bf-37d791470816
Liu, Mingming
140f399e-6ca8-46fb-99d3-6dd9b253ae2b
Chen, Qiang
4f2a5f9b-0f7f-4a64-935a-bdf17a4a3267
Gbatu, Abimelech Paye
bacf44ec-87ce-47e5-88be-e84fc257cdb1
Ren, Xiaohang
970abdf4-ff20-4244-9952-f9ee910736ee
Cheng, Cheng
9d3214f3-3076-40bd-8d11-d0b9571cec48
Wang, Zhen
af8604e4-250c-4c42-93bf-37d791470816
Liu, Mingming
140f399e-6ca8-46fb-99d3-6dd9b253ae2b
Chen, Qiang
4f2a5f9b-0f7f-4a64-935a-bdf17a4a3267
Gbatu, Abimelech Paye
bacf44ec-87ce-47e5-88be-e84fc257cdb1
Ren, Xiaohang
970abdf4-ff20-4244-9952-f9ee910736ee

Cheng, Cheng, Wang, Zhen, Liu, Mingming, Chen, Qiang, Gbatu, Abimelech Paye and Ren, Xiaohang (2017) Defer option valuation and optimal investment timing of solar photovoltaic projects under different electricity market systems and support schemes. Energy, Volume 127, 594–610. (doi:10.1016/j.energy.2017.03.157).

Record type: Article

Abstract

This paper applies the real options method to analyse the defer option value and optimal investment timing for solar photovoltaic projects in China. The main purpose of this paper is to examine investment behaviours under different market systems and support schemes. This paper further investigates the interaction of technological progress and support schemes. Four scenarios are designed, and the corresponding real options models are established. In the case study, we find that electricity market reform enhances the defer option value in the short term but makes the owners of solar PV projects postpone their investment. Nevertheless, the government can stimulate investment by implementing appropriate support schemes. Additionally, the impacts of different support schemes vary according to the market system. The impacts of feed-in tariffs and price premiums are similar in a regulated market but are different in a free market. The price premium scheme greatly promotes the defer option values in the short term, but the feed-in tariff scheme excels in the long term. A feed-in tariff has a greater impact on reducing the expected execution time and its variance than the price premium. In addition, more attractive support schemes are required when the technological level is improved.

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Defer option valuation and optimal investment timing of solar photovoltaic projects under different electricity market systems and support schemes - Accepted Manuscript
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Accepted/In Press date: 30 March 2017
Published date: 15 May 2017
Organisations: Mathematical Sciences

Identifiers

Local EPrints ID: 411066
URI: https://eprints.soton.ac.uk/id/eprint/411066
ISSN: 0360-5442
PURE UUID: 71c274b3-052e-4963-b03e-944cc3318060

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Date deposited: 13 Jun 2017 16:33
Last modified: 09 Apr 2019 04:01

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