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Uncertain Policy Decisions and Investment Timing: Evidence from Small Hydropower PlantsAne Marte HeggedalNorwegian University of Science and Technology (NTNU) Kristin LinnerudCICERO Center for International Climate and Environmental Research - Oslo Stein-Erik FletenNorwegian University of Science and Technology (NTNU) October 21, 2011 Abstract: Based on panel data of 214 licenses to construct small hydropower plants, we examine whether uncertainty with respect to the introduction of a market for renewable energy certificates affected the timing of investments in Norway from 2001 to 2010. Using regression analysis, we find that (1) investors owning a portfolio of licenses act in accordance with a real options investment rule, and uncertain climate policy decisions delayed their investment rate; and (2) investors owning a single license act in accordance with a traditional net present value investment rule, focusing on the value of the immediate investment and ignoring policy uncertainty.
Number of Pages in PDF File: 32 Keywords: Real options, irreversibility, empirical evidence, electricity markets, subsidy uncertainty JEL Classification: D81, D84, G13, G31, H32, Q28, Q48 working papers seriesDate posted: January 21, 2012 ; Last revised: April 30, 2012Suggested CitationContact Information
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