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The price of policy risk — Empirical insights from choice experiments with European photovoltaic project developers

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 essential contribution, but due to relatively high 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, but 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. This paper suggests that project developers who make 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. This model is empirically tested by a stated preference survey among European PV project developers, consisting of 1575 choice decisions by 63 investors. The findings 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 these 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.
   
type journal paper
   
keywords Adaptive conjoint analysis
Choice experiment
Feed-in tariff
Photovoltaic
Policy design
   
project DISTRES - Promotion and consolidation of all Research and Technology Development activities for Renewable Energy Distributed Generation Technologies in the Mediterranean region
language English
kind of paper journal article
date of appearance 4-7-2012
journal Energy Economics
publisher Elsevier B.V. (Amsterdam)
ISSN 0140-9883
ISSN (online) 1873-6181
DOI 10.1016/j.eneco.2011.08.007
volume of journal 34
number of issue 4
page(s) 1001-1011
review double-blind review
   
citation Wüstenhagen, R., & Luethi, S. (2012). The price of policy risk — Empirical insights from choice experiments with European photovoltaic project developers. Energy Economics, 34(4), 1001-1011, DOI:10.1016/j.eneco.2011.08.007.