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http://ssrn.com/abstract=1085063
 
 

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Impact of Policy Uncertainty on Renewable Energy Investment: Wind Power and PTC


Merrill Jones Barradale


Copenhagen Business School

December 30, 2008

USAEE Working Paper No. 08-003

Abstract:     
It is generally understood that the pattern of repeated expiration and short-term renewal of the federal production tax credit (PTC) causes a boom-bust cycle in wind power plant investment in the U.S. This on-off pattern is detrimental to the wind industry, since ramp-up and ramp-down costs are high, and players are deterred from making long-term investments. It is widely assumed that the severe downturn in investment during "off" years implies that wind power is unviable without the PTC. This assumption turns out to be unsubstantiated: this paper demonstrates that it is not the absence of the PTC that causes the investment downturn during "off" years, but rather the uncertainty over its return. Specifically, it is the dynamic of power purchase agreement (PPA) negotiations in the face of PTC renewal uncertainty that drives investment volatility. With contract negotiations prevalent in the renewable energy industry, this finding suggests that reducing regulatory uncertainty is a crucial component of effective renewable energy policy. The PTC as currently structured is not the only means, existing or potential, for encouraging wind power investment. Using data from a survey of energy professionals, various alternative policy incentives are considered and compared in terms of their perceived reliability for supporting long-term investment.

Number of Pages in PDF File: 28

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Date posted: January 18, 2008 ; Last revised: August 16, 2010

Suggested Citation

Barradale, Merrill Jones, Impact of Policy Uncertainty on Renewable Energy Investment: Wind Power and PTC (December 30, 2008). USAEE Working Paper No. 08-003. Available at SSRN: http://ssrn.com/abstract=1085063 or http://dx.doi.org/10.2139/ssrn.1085063

Contact Information

Merrill Jones Barradale (Contact Author)
Copenhagen Business School ( email )
Frederiksberg, DK - 2000
Denmark
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