Price and subsidy under uncertainty: Real-option approach to optimal investment decisions on energy storage with solar PV

Renewable generation sources still have not achieved economic validity in many countries including Korea, and require subsidies to support the transition to a low-carbon economy. An initial Feed-In Tariff (FIT) was adopted to support the deployment of renewable energy in Korea until 2011 and then was switched to the Renewable Portfolio Standard (RPS) to implement more market-oriented mechanisms. However, high volatilities in electricity prices and subsidies under the RPS scheme have weakened investment incentives. In this study we estimate how the multiple price volatilities under the RPS scheme affect the optimal investment decisions of energy storage projects, whose importance is increasing rapidly because they can mitigate the variability and uncertainty of solar and wind generation in the power system. We applied mathematical analysis based on real-option methods to estimate the optimal trigger price for investment in energy-storage projects with and without multiple price volatilities. We found that the optimal trigger price of subsidy called the Renewable Energy Certificate (REC) under multiple price volatilities is 10.5% higher than that under no price volatilities. If the volatility of the REC price gets doubled, the project requires a 26.6% higher optimal investment price to justify the investment against the increased risk. In the end, we propose an auction scheme that has the advantage of both RPS and FIT in order to minimize the financial burden of the subsidy program by eliminating subsidy volatility and find the minimum willingness-to-accept price for investors.

PRICE SENSITIVITY ANALYSIS ON PURCHASING DECISION PROCESS OF DURIAN IN JEPARA REGENCY AND SEMARANG CITY CENTRAL JAVA

Uncertainty of harvested area and the amount of durian production each year makes the price of the durian tend to fluctuate. Price changes can trigger price sensitivity at the consumer level. This study aimed to analyze the level of durian price sensitivity in Jepara Regency and Semarang City and analyze the factors that make the process of buying durian in Jepara Regency and Semarang City. The analysis used in this research was descriptive analysis and logistic regression analysis. The price suggests that the price of Jepara Regency and Semarang City is IDR 45,000.00 – 50,000.00. Overall price levels received durian consumers in the Semarang City was higher than Jepara Regency. Based on the results of logistic regression analysis, it is known that simultaneously the price factor, income, occupation, age, taste, shape, size, aroma, color. and size.