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Policy uncertainties: What investment choice for solar panel producers?

Abstract Solar power has achieved great development in the last decade, and it should continue to play a central role in the face of climate change and sustainable development challenges. This paper builds a real options model that provides a microeconomic analytical framework with the Least Squares Monte Carlo (LSM) method to assess the investment choices of a typical solar panel producer in China facing trade and domestic supply- and demand-side policy uncertainties. It builds a baseline scenario and three policy scenarios with decreasing anti-dumping and countervailing charges, constant feed-in tariff (FIT) level and reduced investment cost. A typical producer will have to make an investment decision on building a new production line in five years based on a decision impact analysis within 20 years. The result shows an immediate investment decision for all scenarios. The producer will have higher return from investment in building a solar power plant with a constant FIT. Export is the optimal choice in other scenarios where investment return is lower. After sensitivity analysis, the paper concludes and can be used as a toolkit for solar panel producers and a reference for policy makers to evaluate the impact of policy uncertainties.
- Chinese Academy of Sciences China (People's Republic of)
- Sciences Po France
- Beihang University China (People's Republic of)
- Institute for Sustainable Development and International Relations France
- Chinese Academy of Sciences China (People's Republic of)
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