We use a real options model in discrete time with lumpy multiple investments to analyze the decisions of an electricity producer to invest into new power generating capacity, to select the type of technology and to optimize its operation under price uncertainty and with market effects. We account for both the specific characteristics of renewables and the market effects of investment decisions. The prices are determined endogenously by the supply of electricity in the market and by exogenous electricity price uncertainty.
The framework is used to analyze energy policy, as well as the reaction of producers to uncertainty in the political and regulatory framework. In this way, we are able to compare different policies to foster investment into renewables and analyze their impacts on the market.