Optimal Power Investment and Pandemics: A Micro-Economic Analysis
This paper derives the optimal investment policy of an electricity producer during a pandemic. We consider three problems: (1) investing in a gas-fired plant, (2) investing in a wind plant, and (3) investing in the best of a gas plant and a wind plant. Optimal investment boundaries are characterized...
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| Format: | Article |
| Language: | English |
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MDPI AG
2021-02-01
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| Series: | Energies |
| Subjects: | |
| Online Access: | https://www.mdpi.com/1996-1073/14/4/814 |
| _version_ | 1797415337738633216 |
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| author | Jerome Detemple Yerkin Kitapbayev |
| author_facet | Jerome Detemple Yerkin Kitapbayev |
| author_sort | Jerome Detemple |
| collection | DOAJ |
| description | This paper derives the optimal investment policy of an electricity producer during a pandemic. We consider three problems: (1) investing in a gas-fired plant, (2) investing in a wind plant, and (3) investing in the best of a gas plant and a wind plant. Optimal investment boundaries are characterized and valuation formulas derived. For single technology projects, a pandemic postpones wind investment, but can accelerate gas investment when the relative price of gas decreases. For choices between the two technologies, a substitution effect can reinforce the single technology effects, accelerating gas investment under certain conditions. The paper examines the impact of pandemic parameters, economic parameters and policy parameters on the investment boundaries, the values of projects and the premium for green energy. |
| first_indexed | 2024-03-09T05:47:20Z |
| format | Article |
| id | doaj.art-96f8e3d229c44fc684c7f93dcd780913 |
| institution | Directory Open Access Journal |
| issn | 1996-1073 |
| language | English |
| last_indexed | 2024-03-09T05:47:20Z |
| publishDate | 2021-02-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Energies |
| spelling | doaj.art-96f8e3d229c44fc684c7f93dcd7809132023-12-03T12:20:13ZengMDPI AGEnergies1996-10732021-02-0114481410.3390/en14040814Optimal Power Investment and Pandemics: A Micro-Economic AnalysisJerome Detemple0Yerkin Kitapbayev1Department of Finance, Questrom School of Business, Boston University, 595 Commonwealth Avenue, Boston, MA 02215, USADepartment of Mathematics, North Carolina State University, 2311 Stinson Drive, Raleigh, NC 27695, USAThis paper derives the optimal investment policy of an electricity producer during a pandemic. We consider three problems: (1) investing in a gas-fired plant, (2) investing in a wind plant, and (3) investing in the best of a gas plant and a wind plant. Optimal investment boundaries are characterized and valuation formulas derived. For single technology projects, a pandemic postpones wind investment, but can accelerate gas investment when the relative price of gas decreases. For choices between the two technologies, a substitution effect can reinforce the single technology effects, accelerating gas investment under certain conditions. The paper examines the impact of pandemic parameters, economic parameters and policy parameters on the investment boundaries, the values of projects and the premium for green energy.https://www.mdpi.com/1996-1073/14/4/814investmentpandemicelectricitygasmutually exclusive projectsgreen energy |
| spellingShingle | Jerome Detemple Yerkin Kitapbayev Optimal Power Investment and Pandemics: A Micro-Economic Analysis Energies investment pandemic electricity gas mutually exclusive projects green energy |
| title | Optimal Power Investment and Pandemics: A Micro-Economic Analysis |
| title_full | Optimal Power Investment and Pandemics: A Micro-Economic Analysis |
| title_fullStr | Optimal Power Investment and Pandemics: A Micro-Economic Analysis |
| title_full_unstemmed | Optimal Power Investment and Pandemics: A Micro-Economic Analysis |
| title_short | Optimal Power Investment and Pandemics: A Micro-Economic Analysis |
| title_sort | optimal power investment and pandemics a micro economic analysis |
| topic | investment pandemic electricity gas mutually exclusive projects green energy |
| url | https://www.mdpi.com/1996-1073/14/4/814 |
| work_keys_str_mv | AT jeromedetemple optimalpowerinvestmentandpandemicsamicroeconomicanalysis AT yerkinkitapbayev optimalpowerinvestmentandpandemicsamicroeconomicanalysis |