Online Seminar | Optimal regulation of energy network expansion when costs are stochastic
14:30 - 14:30
December 14, 2020 - h 2:30 PM
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In the study “Optimal regulation of energy network expansion when costs are stochastic”, the authors analyze optimal regulation of the gradual investments in energy networks necessary to accommodate the energy transition. They focus on a real option problem where costs of new network technology are stochastic and not observable to the regulator. They solve for the regulatory scheme that optimally balances timely investments with rent extraction in this dynamic agency context. Then, they apply this methodology to a situation in which investment can be either in traditional network technology, with observable costs, or using an innovative network technology for which there is asymmetric information on costs. The optimal choice trades off the potential benefits of cheaper expansion with the costs of overcoming information frictions.