Incentives for Investing in Renewables

The interest around renewable resources is growing at a fast pace, given general worry on climate changes and the rally of fossil fuel prices. Producing energy through renewable resources plants is however not immediate for economic and technological reasons. Even in a period where the price of oil has reached its historical maximum, productivity of conventional plants is still preferable with respect to renewable plants (i.e. wind and solar). Several national governments are therefore studying incentives plans to sustain environment policies. In this paper we analyze two incentive forms: feed in tariffs and Green Certificates (GC). We develop conditions for the minimum value of GC to equate renewable resources plants to fossil fuel ones in terms of expected profits. An empirical application of the model is developed using German and Italian electricity market data.