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Using real options to study the impact of capacity additions and investment expenditures in renewable energies in India

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  • DAS GUPTA, SUPRATIM

Abstract

We calculate the overall policy value of installed capacity additions and investment expenditures in wind and solar energies in India. Recent increases in capacity additions and investments by both the public and private sectors alongwith government support schemes have made these energies more competitive with traditional fuels like coal in generating electricity. We use a two-factor learning curve to model the decline in prices of wind and solar energies. Employing a real options approach with global coal prices as the stochastic variable we find the overall value of promotion policies in renewables to be sufficiently large. Reducing the share of coal in electricity generation is one of India’s stated goals and a high trigger price of coal suggests continued efforts of capacity additions and investment expenditures in the solar and wind sectors are needed for some time in India.

Suggested Citation

  • Das Gupta, Supratim, 2018. "Using real options to study the impact of capacity additions and investment expenditures in renewable energies in India," MPRA Paper 90441, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:90441
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    More about this item

    Keywords

    India Electricity; Wind and Solar; Installed Capacities; Investment Expenditures; Real Options;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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