Optionality and Policymaking in Re-Transforming the British Power Market
2014 (English)In: Economics of Energy & Environmental Policy, ISSN 2160-5882, E-ISSN 2160-5890, Vol. 3, no 2, 79-100 p.Article in journal (Refereed) Published
Conventional models to support policymaking for the energy sector have been largely based on deterministic or static settings that focus on planning welfare-maximising investment pathways. But, in a liberalised market, since investments are made by competitive, profit-maximising companies, the increased intervention of government policy in the trading arrangements creates uncertain responses to incentives. Industry may perceive policy risks to be high, and major companies may choose to act more cautiously than governments expect. This presents a modelling challenge, and we propose an extension to the use of real options in this context. We model several features of the low-carbon investment context, viz., irreversibility, delay, and competition, which impinge upon the radical policy imperatives for structural change in electricity markets to meet ambitious sustainability targets.
Place, publisher, year, edition, pages
2014. Vol. 3, no 2, 79-100 p.
Low-CO2 technologies, Policy risk, Real options
Research subject Computer and Systems Sciences
IdentifiersURN: urn:nbn:se:su:diva-111026DOI: 10.5547/2160-5890.3.2.mchrISI: 000357434800006OAI: oai:DiVA.org:su-111026DiVA: diva2:773811