Quotation Gugler, Klaus, Haxhimusa, Adhurim, Liebensteiner, Mario, Schindler, Nora. 2016. Investment under Uncertainty in Electricity Generation.


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Abstract

The recent transformation of European electricity markets with increasing generation from intermittent renewables brings about many challenges. Among them, decaying wholesale prices, partly due to support schemes for renewables, may send insufficient investment signals for other technologies. We investigate the investment decision in a structural equation based on the Tobin's q-model, which we extend by both industry- and firm-technology-specific uncertainty. We utilize rich and novel data at the disaggregated firm generation technology level of European electricity generating firms for the period 2006-2014. Our results show that investment in any generation technology follows market incentives despite sunk and irreversible capital, confirming the implications of the q-model. Moreover, while firm-technology-specific uncertainty decreases firms' investment activity, especially in coal and gas, aggregate uncertainty triggers firms' investment. Our results raise concerns about system reliability in the long run since conventional technologies still serve as a flexible system back-up.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Working/discussion paper, preprint
Language English
Title Investment under Uncertainty in Electricity Generation
Year 2016
URL http://epub.wu.ac.at/5177/
JEL JEL L22, L25, L51, Q48

Associations

People
Gugler, Klaus (Details)
Haxhimusa, Adhurim (Former researcher)
Liebensteiner, Mario (Former researcher)
Schindler, Nora (Details)
Organization
Institute for Economic Policy and Industrial Economics IN (Details)
Research areas (Ă–STAT Classification 'Statistik Austria')
2906 Power industry (Details)
5370 Industrial economics (Details)
5372 Regulatory economics (Details)
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