Uncertain Policy Decisions and Investment Timing: Evidence from Small Hydropower Plants
32 Pages Posted: 20 Mar 2012 Last revised: 30 Apr 2012
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Uncertain Policy Decisions and Investment Timing: Evidence from Small Hydropower Plants
Date Written: March 18, 2012
Abstract
Based on panel data of 214 licenses to construct small hydropower plants, we examine whether uncertainty with respect to the introduction of a market for renewable energy certificates affected the timing of investments in Norway from 2001 to 2010. Using regression analysis, we find that (1) investors owning a portfolio of licenses acted in accordance with a real options investment rule, and uncertain climate policy decisions delayed their investment rate; and (2) investors owning a single license acted in accordance with a traditional net present value investment rule, focusing on the value of the immediate investment and ignoring policy uncertainty.
Keywords: Policy uncertainty, Renewable energy, Investments, Real options, Discrete choice models
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