ORCIBS SEMINAR- Volodymyr Babich

Author: CASE
Time: 11:00
Location: CASE Z-24



Speaker:  Volodymyr Babich- McDonough School of Business, Georgetown University

Title:      Promoting Solar Panel Investments: Feed-in-Tariff versus Tax-Rebate Policies

Date:       18 June 2019 -TUESDAY

Time        11:00-12:30

Place:      CASE Z-24

Abstract: Governments have adopted various subsidy policies to promote investment in renewable energy sources, such as rooftop solar panels. The German government uses a feed-in-tariff policy that provides a guaranteed stream of payments for each unit of electricity generated by a household. In contrast, the U.S. government uses a tax-rebate policy that reduces the initial investment cost and the household receives the retail price for the generated electricity. In this paper, we study the key economic factors that favor one policy over the other from the perspective of the government. These factors are the heterogeneity in the generating efficiency, and the variability in the electricity price and in the investment cost. We consider an infinite-horizon, continuous-time model where the government moves first and announces either a feed-in tariff or tax rebate. Then, each household dynamically decides if and when to invest in a unit of solar panel. The objective of the government is to maximize the expected value of a subsidy policy, i.e., the difference between the societal benefit of solar panel investments and the subsidy cost over time. We characterize the timing of the investment decision of the households and the optimal value of the subsidy policies to the government. Our results suggest that a government should prefer the feed-in-tariff policy when the electricity price is highly uncertain. Intuitively, feed-in-tariff policy eliminates the price variability; thus, it removes the strategic delay in the investment.  The tax-rebate policy should be adopted if the households are heterogeneous in generating efficiency, if the investment cost is highly variable, or if the price and cost uncertainty are positively correlated.

Short Bio: Volodymyr Babich is the Lapeyre Family Term Associate Professor of Business Administration at the McDonough School of Business, Georgetown University.  Prior to joining Georgetown University, he was an Assistant Professor at the University of Michigan, Ann Arbor, and worked for Penske Logistics Engineering. He earned his Ph.D. in Operations Research from Case Western Reserve University, Weatherhead School of Management.  He also holds M.S. degrees in Management Science and Mathematics.

Prof. Babich’s research interests are the interface of operations and finance, supply risk management, supply chain management, stochastic modeling, and risk management.  His research has been supported by the National Science Foundation, and various university and industry grants.  His papers have been published in leading Operations Research, Operations Management, and Industrial Engineering journals.  Prof. Babich serves as an associate editor for Management Science, M&SOM, and Naval Research Logistics, and as a senior editor for Production and Operations Management journals.  He is an active member of INFORMS and the MSOM society, and has served twice as the Chair of the MSOM Special Interest Group on the Interface of Finance, Operations, and Risk Management (iFORM).