Measuring Financial Impacts of the Renewable Energy Based Fiscal Policy in Colombia under Electricity Price Uncertainty

This paper analyses the financial implications, from point of view an investor in renewable energy, which sells energy for uncertain price electricity and decides to take advantage Colombian tax policy over energy. The policy, known as Investment Tax Allowance (ITA), encourages installation projects a country traditionally dominated by hydro power. Price is modeled non-stationary autoregressive stochastic process with normally distributed error terms. Costs, revenue taxes are considered assess impact on solar project when implemented. Since varies according ownership, two cases evaluated: generation company (GENCO-1) that only owns project; and, existent (GENCO-2) portfolio projects. Results indicate if ITA applied, it likely GENCO-1 cannot full incentive, opposed GENCO-2. Although this might not satisfy planner objectives since does guarantee construction significantly high capacity new projects, definitely represents attractive mechanism decrease obligations at GENCO-2 level. Finally, theoretical analysis shows investment cost affects mean present value; whereas rates impacts both its standard deviation.