Risk-sensitive investment in renewable distributed generation under uncertainty due to post-feed-in tariff policy

We model a risk-sensitive investment strategy in renewable distributed generation. The risk arises from the uncertainty regarding what feed-in tariff (FIT) rates or payment structure may be adopted once an initial stable duration is over. We develop a scenario-based approach where investors can choose to follow a degree of risk aversion that best suits them. We show that FIT policies should ensure a minimum stable duration and rate for investors to obtain a positive return over investment and thus nontrivial investment decisions. This methodology could help policy makers in proposing FIT programs that are consistent with the investors´ interest and that thus promote rapid and sustainable growth of renewable and encourage technological innovation well beyond the risk-free FIT rate period. We illustrate our proposed method with a case study on a 50 MW solar photovoltaic system.