Measuring Financial Impacts of the Renewable Energy Based Fiscal Policy in Colombia under Electricity Price Uncertainty

Abstract

This paper analyses the financial implications, from the point of view of an investor in renewable energy, which sells the energy for an uncertain price of electricity and decides to take advantage of the Colombian tax policy over the renewable energy. The policy, known as Investment Tax Allowance (ITA), encourages installation of renewable projects in a country traditionally dominated by hydro power. Price is modeled as a non-stationary autoregressive stochastic process with normally distributed error terms. Costs, and uncertain revenue and taxes are considered to assess the financial impact on a solar project when the policy is implemented. Since impact varies according to project ownership, two cases are evaluated: a generation company (GENCO-1) that only owns the solar project; and, an existent generation company (GENCO-2) that owns a portfolio of projects. Results indicate that if ITA is applied, it is likely that the GENCO-1 cannot take the full advantage of the incentive, as opposed to the GENCO-2. Although this policy might not satisfy planner objectives since it does not guarantee the construction of significantly high capacity of new renewable energy projects, it definitely represents an attractive mechanism to decrease tax obligations at the GENCO-2 level. Finally, a theoretical analysis shows that investment cost affects the mean of the present value; whereas tax rates impacts both its mean and standard deviation.

Key Issues and Technical Applications in the Study of Power Markets as the System Adapts to the New Power System in China

“…However, only two of these papers were published after the NPS was proposed. Only one of them focused on the financial implications for investors in renewable energy [167]. The other one introduced a day-ahead clearing model for the simultaneous energy and ancillary services market with a high penetration of renewable energy sources [127].…”

An Energy Management System for PV Sources in Standalone and Connected DC Networks Considering Economic, Technical, and Environmental Indices

“…Therefore, this study uses the codification presented in Figure 1. On the other hand, the SA deals with the constraints associated with the mathematical model defined from (1) to (10).…”

“…The set of constraints that represent the problem addressed in this paper is presented in Equations ( 6) to (10).…”

“…Box-type inequality constraint (9) establishes the voltage bounds of the nodal voltage, where V min i and V min i are the minimum and maximum voltages allowed, respectively. In addition, inequality constraint (10) represents the current that can flow through the branches. In this inequality, I max l corresponds to the maximum current allowed in branch l. In this inequality, the limits of this value have positive and negative magnitudes, as the current can flow in both directions in DC grids.…”

“…By analyzing this behavior, it is possible to observe the need to diversify the energy matrix, given its high dependence on hydroelectric generation (which could have a significant impact if there is a deficit in precipitations) and fossil fuels. Thus, creating opportunities for the growth of renewable energy sources in the coming years [10,11]. It is also important to highlight that Colombia's geographical location (i.e., between the equatorial line and the tropic of Cancer) implies no influence of the seasons, with a high number of solar hours throughout the year [12] and important solar radiation levels.…”