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

DAS GUPTA, SUPRATIM (2018): Using real options to study the impact of capacity additions and investment expenditures in renewable energies in India.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: India Electricity, Wind and Solar, Installed Capacities, Investment Expenditures, Real Options
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L94 - Electric Utilities; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q42 - Alternative Energy Sources; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q48 - Government Policy

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