The value of holding scarce wind resource—A cause of overinvestment in wind power capacity in China

China's wind power capacity has increased dramatically in recent years, but about 30% of the installed capacity sits idle, so overinvestment in wind power capacity seems to be a serious problem. This paper explores reasons for the overinvestment. The economic analysis shows that, given uncertai...

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Bibliographic Details
Published inEnergy policy Vol. 63; pp. 97 - 100
Main Author Liu, Xuemei
Format Journal Article
LanguageEnglish
Published Kidlington Elsevier Ltd 01.12.2013
Elsevier
Elsevier Science Ltd
Subjects
Applied sciences
business enterprises
China
China (People's Republic)
Decision analysis
Economic analysis
Economic data
Electric utilities
Electricity distribution
Energy
Energy economics
Energy policy
Energy resources
Exact sciences and technology
General, economic and professional studies
Governments
Investment
Investments
issues and policy
Location
Natural energy
Optimization
Overinvestment
Policies
Studies
Value
wind
Wind power
Wind power capacity
Wind power generation
China
Asia
China, People's Rep
Overinvestment
Wind power capacity
China
Uncertainty
Depletion
Wind energy
Resource
Energy policy
Investment
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Summary:China's wind power capacity has increased dramatically in recent years, but about 30% of the installed capacity sits idle, so overinvestment in wind power capacity seems to be a serious problem. This paper explores reasons for the overinvestment. The economic analysis shows that, given uncertain future policy on wind power, it is optimal for power companies to invest more than the amount in a certain world. A part of the “overinvestment” has a real value, which can be interpreted as the value of holding scarce wind resource. This value exists because the wind-rich sites with convenient locations to connect to the grids are scarce resource, and also because the specific government policies that are essential for promoting wind power are uncertain in the future. This value should be taken into account in the investment decision, but it results in the phenomenon of “overinvestment”. The concept of the value of holding scarce resource can be generally applied to the resources that are scarce and for which the future policy is uncertain.
Bibliography:http://dx.doi.org/10.1016/j.enpol.2013.08.044
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ISSN:0301-4215
1873-6777
DOI:10.1016/j.enpol.2013.08.044