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Study on Behavioral Decision Making by Power Generation Companies Regarding Energy Transitions under Uncertainty

Author

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  • Ryosuke Gotoh

    (Graduate School of Energy Science, Kyoto University, Kyoto 606-8501, Japan
    Mitsubishi Heavy Industries, Ltd., Kobe 652-8585, Japan)

  • Tetsuo Tezuka

    (Graduate School of Energy Science, Kyoto University, Kyoto 606-8501, Japan)

  • Benjamin C. McLellan

    (Graduate School of Energy Science, Kyoto University, Kyoto 606-8501, Japan)

Abstract

With respect to decision making by companies, normative approaches such as the net present value (NPV) method are widely applied, even though it is known that investors may make non-normative decisions. This study aimed to obtain new information on the decision-making behavior of renewable energy (RE) companies under uncertainty in the energy market, which is not provided by the conventional normative approach. In this study, we designed a novel framework that expressed both normative and non-normative perspectives of decision making, and developed a behavioral decision-making model of a power generation company investing in large-scale RE (RE company). We also examined the decisions of the RE company under uncertainty in the energy market using the developed model, considering the Kansai region in Japan as an example study area. As a result, compared to the conventional NPV method, we obtained the following information: (i) heavy investments in either photovoltaics (PV) or wind resulted in decreased variable renewable energy (VRE) capacity, even though financial support was sufficient; (ii) balanced investments in both PV and wind yielded a larger VRE capacity in cases where financial support was sufficient; and (iii) co-worker’s suggestions that lowered the decision-makers’ reference point (RFP) encouraged VRE investments despite insufficient financial support.

Suggested Citation

  • Ryosuke Gotoh & Tetsuo Tezuka & Benjamin C. McLellan, 2022. "Study on Behavioral Decision Making by Power Generation Companies Regarding Energy Transitions under Uncertainty," Energies, MDPI, vol. 15(2), pages 1-29, January.
    • Handle: RePEc:gam:jeners:v:15:y:2022:i:2:p:654-:d:726754
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    References listed on IDEAS

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    3. Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(4), pages 707-727.
    4. McDonald, Robert L & Siegel, Daniel R, 1985. "Investment and the Valuation of Firms When There Is an Option to Shut Down," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 331-349, June.
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    Cited by:

    1. Ryosuke Gotoh, 2024. "Analyzing the influence of web search behavior on electricity market price: a case study of Japan electric power exchange," Journal of Computational Social Science, Springer, vol. 7(1), pages 837-876, April.
    2. Yilun Luo & Esmaeil Ahmadi & Benjamin C. McLellan & Tetsuo Tezuka, 2022. "Will Capacity Mechanisms Conflict with Carbon Pricing?," Energies, MDPI, vol. 15(24), pages 1-25, December.

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