IDEAS home Printed from https://ideas.repec.org/h/spr/sprchp/978-0-387-77353-7_18.html
   My bibliography  Save this book chapter

Modelling impacts of climate change policy uncertainty on power investment

In: Economics and Management of Climate Change

Author

Listed:
  • Ming Yang

    (Energy and Environment Division International Energy Agency)

  • William Blyth

    (Oxford Energy Associates)

Abstract

The changing electricity prices in competitive electricity markets, the uncertain carbon prices, and the increasing energy prices have forced power investors and government policy-makers to search for, and use, more sophisticated methods for project evaluations. The objective of this paper is to present a computer model currently developed by the International Energy Agency (IEA) to quantify the impacts of climate change policy uncertainties on power investment. The methodologies used include the traditional discounted cash flow approach to calculating project net present value, stochastic simulation to capture the characteristics of uncertain variables, and real option valuation to capture investors’ flexibility to optimize the timing of their investment. We applied these modelling methodologies in a case study to evaluate the effects of the changing carbon prices on firms’ decisions to invest in more energy efficiency power technologies. The study concludes that (1) the simulation of stochastic processes and real options could be very useful tools for power investors when dealing with uncertainties about future carbon prices; and (2) the more uncertain the primary energy prices and carbon trading prices, the more the economic case for lower emitting technologies deviates from the traditional discounted cash flow.

Suggested Citation

  • Ming Yang & William Blyth, 2008. "Modelling impacts of climate change policy uncertainty on power investment," Springer Books, in: Bernd Hansjürgens & Ralf Antes (ed.), Economics and Management of Climate Change, pages 243-256, Springer.
    • Handle: RePEc:spr:sprchp:978-0-387-77353-7_18
    DOI: 10.1007/978-0-387-77353-7_18
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pablo Salas, 2013. "Literature Review of Energy-Economics Models, Regarding Technological Change and Uncertainty," 4CMR Working Paper Series 003, University of Cambridge, Department of Land Economy, Cambridge Centre for Climate Change Mitigation Research.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:sprchp:978-0-387-77353-7_18. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.