TH`ESE Docteur de l'Université Paris-Dauphine Morgan HERVÉ ...

sponses (chapter 1) and an empirical account of operating and financial
investment (chapter 2), we explore a more theoretical point of view on investment
in the third chapter (”Impact of the EU ETS on investment in
new generation: a real options approach”). We present the evolution of investment
decision-making models and explain the difficulties but also the
benefits of resorting to a real options approach compared to a traditional
deterministic discounted cash flows models. This chapter aims at developing
carbon price scenarios and analysing their impacts on power generation
investment portfolios. In order to do so, we resort to a real options setting
using the least-squares Monte Carlo approach (Longstaff and Schwartz, 2001
[2] and Gamba, 2003 [3]). The investment decision model used is able to
consider various generation technologies and several sources of uncertainty
(including the carbon price). The model allows for flexibility in the decisionmaking
under some budget constraint. Results from sensitivity tests to various
carbon price scenarios indicate that (1) the EU ETS has a moderate
but central reallocation role in power generation investment portfolios, (2)
insights into the long-term carbon price trend, especially the level of the cap
at various points in time, are particularly helpful to unlock investment in
generation, (3) some much discussed policy provisions (price support mechanisms
or the new entrants reserve for instance) only have a relatively small
or negligible impact on power generation investmentportfolios,(4)carbon
price expectations impact decisions relative to power generation investment
portfolios including delays and cancellations and (5) while the EU ETS has
acentralrole,theclimateandnon-climatepolicymixmattersmost. The
model developed in this chapter is able to capture both timing and technology
changes in a portfolio context and provide some insights to policymakers
in designing and making amendments to cap-and-trade policies with a view
towards more emissions reduction by compliance buyers.
The main difficulties we faced in this PhD thesis were, first, the absence
of a readily available dataset for investment in power generation in Europe
and, second, some methodological difficulties in developing a relevant and
insightful decision-making model. The former was addressed by manually
reconstituting the power generation investment pipeline of the surveyed utilities.
The latter was addressed by resorting to a state of the art real options
model.
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