The Price of Policy Risk - Empirical Insights from Choice Experiments with European Photovoltaic Project Developers
Type
working paper
Date Issued
2011
Author(s)
Abstract
Managing the transition to a renewable energy future is an important policy priority in many countries. Solar photovoltaic (PV) technology is expected to make an important contribution, but due to relatively higher cost, its growth to date has been largely driven by public policy, notably feed-in tariffs. Feed-in tariffs have been implemented in various countries, however with widely differing outcomes in terms of installed PV capacity. Previous research indicates that the level of policy risk may be an important driver for differences in renewable energy policy effectiveness. More specifically, we suggest that investors who take a decision between PV investment opportunities in different countries carefully weigh feed-in tariff-induced returns against a set of policy risks, and choose the country with the most favorable risk-return profile. We empirically test this model based on a stated preference survey among European PV project developers, consisting of 1575 choice decisions by 63 investors. The findings of our study demonstrate that risk matters in PV policy design, and that a "price tag" can be attached to specific policy risks such as the duration of administrative processes or uncertainty induced by an approaching capacity cap. Governments can build on our empirical results to design policies that will be effective in attracting private PV investment, while at the same time maintaining efficiency by providing an adequate compensation for policy risk.
Language
English
Keywords
Adaptive conjoint analysis
choice experiment
feed-in tariff
photovoltaics
policy design
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Institute for Economy and the Environment, Univ. St. Gallen
Subject(s)
Eprints ID
61086
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Name
Luethi_Wuestenhagen_PricePolicyRisk_20100331.pdf
Size
811.58 KB
Format
Adobe PDF
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