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Uncertain Policy Decisions and Investment Timing: Evidence from Small Hydropower PlantsStein-Erik FletenNorwegian University of Science and Technology (NTNU) Ane Marte HeggedalNorwegian University of Science and Technology (NTNU) Kristin LinnerudCICERO Center for International Climate and Environmental Research - Oslo March 18, 2012 USAEE Working Paper No. 2025654 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 acted in accordance with a real options investment rule, and uncertain climate policy decisions delayed their investment rate; and (2) investors owning a single license acted 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: Policy uncertainty, Renewable energy, Investments, Real options, Discrete choice models working papers seriesDate posted: March 20, 2012 ; Last revised: April 30, 2012Suggested CitationContact Information
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