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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 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.
   
type working paper (English)
   
keywords Adaptive conjoint analysis, choice experiment, feed-in tariff, photovoltaics, policy design
   
project DISTRES - Promotion and consolidation of all Research and Technology Development activities for Renewable Energy Distributed Generation Technologies in the Mediterranean region
date of appearance 2011
publisher Institute for Economy and the Environment, Univ. St. Gallen
review double-blind review
   
citation Luethi, S., & Wüstenhagen, R. (2011). The Price of Policy Risk – Empirical Insights from Choice Experiments with European Photovoltaic Project Developers: Institute for Economy and the Environment, Univ. St. Gallen.