Renewable energy investment under stochastic interest rate with regime-switching volatility

被引:0
|
作者
Detemple, Jerome [1 ]
Kitapbayev, Yerkin [2 ]
Reppen, A. Max [1 ]
机构
[1] Boston Univ, Questrom Sch Business, 595 Commonwealth Ave, Boston, MA 02215 USA
[2] Khalifa Univ Sci & Technol, Math Dept, POB 127788, Abu Dhabi, U Arab Emirates
关键词
Green energy; Investment; Real options; Interest rate uncertainty; POWER; FLEXIBILITY;
D O I
10.1016/j.eneco.2024.107734
中图分类号
F [经济];
学科分类号
02 ;
摘要
We examine the impact of the interest rate and its characteristics, such as long run mean and instantaneous variance risk (VR), on renewable energy investments in the power sector. The model has stochastic electricity price, stochastic interest rate, and variance regime switches. We show that an increase in the interest rate, while generally increasing the value of a power project, can have a non-monotone effect if the subsidy is sufficiently large. VR increases (reduces) the project value in the high variance regime, if the subsidy is sufficiently large (low). Under a fixed price contract, value declines and it is optimal to delay investment following an increase in the interest rate. The model helps to explain the US offshore industry experience in 2023.
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页数:18
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