The Impact of Volatility in Bioenergy Investments: A Real Options Approach

The paper investigates the impact of volatility on irreversible bioenergy investments in the absence of policy support schemes. The effects of different volatility sources and varying investment conditions on the optimal investment rule are studied in a partial equilibrium model which represents the interplay of the global energy market and the local bioenergy and food markets. Volatilities are presumed to stem from normally distributed stochastic shocks to the global energy price and the local food demand. The central assumption of the model is that bioenergy producers have the possibility to temporally suspend production if business conditions worsen. The model is solved numerically using real options based stochastic simulation experiments in combination with genetic algorithms. The results demonstrate that the possibility to limit losses through temporary production suspension may create incentives to invest even at high uncertainty. This effect occurs in the case of both single and multiple uncertainties and is the stronger the higher the variable production costs are in relation to fixed costs. It could also be observed that the presence of investment lags is a necessary condition for the ambiguous effect of uncertainty on investment incentives. The declining investment trigger indicates that the combined effect of time lags, cost structure and temporary production suspension increases the likelihood of extreme profits in good states and, therefore, may not only weaken, but even overcompensate the depressing effect of uncertainty on investments

IMPACT OF THE INTRODUCTION OF DECOUPLED PAYMENTS ON FUNCTIONING OF THE GERMAN LAND MARKET. COUNTRY REPORT OF THE EU TENDER: "STUDY ON THE FUNCTIONING OF LAND MARKETS IN THOSE EU MEMBER STATES INFLUENCED BY MEASURES APPLIED UNDER THE COMMON AGRICULTURAL POLICY"

Against the background of the reform of the Common Agricultural Policy (CAP) in 2003 the following analysis, brings into focus the responses of the agricultural sector to decoupled subsidies. In particular it addresses the impact of the Single Payment Scheme (SPS) on land sales and rent prices and therefore on farm structure. It also aims to assess the extent to which the reform advances sound and sustainable agriculture and provides incentives for market-orientated farming practices. The study is based on the analysis of statistical data and expert surveys conducted in three selected regions