Analyzing the effects of a renewable energy support mechanism on investments under uncertainty: case of Russia

Abstract

More and more countries worldwide introduce renewable energy policies to incentivize new investments. This trend is followed by a growing body of academic research that intends to assess the effectiveness of different support mechanisms in promoting renewable energy. Russia has recently introduced a support mechanism for renewable energy investments that considerably differs from existing, widely spread, types of support mechanisms. However, the design of the Russian mechanism has received only modest attention in the academic and the business literature. The main purpose of this research is to analyze the effects of the Russian renewable energy support mechanism on investment profitability. This thesis is a collection of publications linked by a common theme of studying renewable energy profitability under the Russian support mechanism.

In the efforts to analyze the Russian renewable energy support mechanism, this research applies several investment analysis techniques, including traditional capital budgeting analysis, sensitivity analysis, simulation-based and fuzzy set theory-based real options approaches. To enhance the information content and analytical power of the simulation-based real options approach, this research introduces a new and improved investment analysis method that is able to capture the complexity of investments with multivariable uncertainty and that facilitates decision-making.

The results of this thesis provide a holistic picture of the Russian renewable energy support mechanism on investment profitability. It is noted that the mechanism shields investment profitability from the changing market environment and incentivizes the high performance of renewable energy projects. The contributions of this research include the creation of a roadmap for investors and project managers planning renewable power generation projects in Russia, providing insight for researchers and policymakers on alternative to the mainstream designs for renewable energy support, and presenting the new simulation-based method for investment analysis for better decision making. The applicability of the new method can be generalized into broader investment valuation context, independent of a particular industry.