Evaluation of hydropower upgrade projects - a real options approach

When evaluating whether to refurbish existing hydropower plants or invest in a new power plant, there are two important aspects to take into consideration. These are the capacity chosen for the production facilities and the timing of the investment. This paper presents an investment decision support framework for hydropower producers with production facilities due for restoration. The producer can choose between refurbishing existing power plants and investing in a new production facility. A real options framework is proposed to support the investment decision. Using a case from Norsk Hydro ASA, a Norwegian hydropower producer, we employ the framework to evaluate the investment opportunities. Our main contribution is an approach that combines hydropower scheduling and real options valuation, and the results from our analysis suggest feasible investment strategies for Norsk Hydro ASA.Electricity price uncertainty; reservoir management; hydroelectric scheduling; investment under uncertainty; electricity markets

Evaluation of hydropower upgrade projects - a real options approach

When evaluating whether to refurbish existing hydropower plants or invest in a new power plant, there are two important aspects to take into consideration. These are the capacity chosen for the production facilities and the timing of the investment. This paper presents an investment decision support framework for hydropower producers with production facilities due for restoration. The producer can choose between refurbishing existing power plants and investing in a new production facility. A real options framework is proposed to support the investment decision. Using a case from Norsk Hydro ASA, a Norwegian hydropower producer, we employ the framework to evaluate the investment opportunities. Our main contribution is an approach that combines hydropower scheduling and real options valuation, and the results from our analysis suggest feasible investment strategies for Norsk Hydro ASA

Evaluation of hydropower upgrade projects - a real options approach

When evaluating whether to refurbish existing hydropower plants or invest in a new power plant, there are two important aspects to take into consideration. These are the capacity chosen for the production facilities and the timing of the investment. This paper presents an investment decision support framework for hydropower producers with production facilities due for restoration. The producer can choose between refurbishing existing power plants and investing in a new production facility. A real options framework is proposed to support the investment decision. Using a case from Norsk Hydro ASA, a Norwegian hydropower producer, we employ the framework to evaluate the investment opportunities. Our main contribution is an approach that combines hydropower scheduling and real options valuation, and the results from our analysis suggest feasible investment strategies for Norsk Hydro ASA

Optimal investment timing and capacity choice for pumped hydropower storage

Pumped hydropower storage can smooth output from intermittent renewable electricity generators and facilitate their large-scale use in energy systems. Germany has aggressive plans for wind power expansion, and pumped storage ramps quickly enough to smooth wind power and could profit from arbitrage on the short-term price fluctuations wind power strengthens. We consider five capacity alternatives for a pumped storage facility in Norway that practices arbitrage in the German spot market. Price forecasts given increased wind capacity are used to calculate profit-maximizing production schedules and annual revenue streams. Real options theory is used to value the investment opportunity, since unlike net present value, it accounts for uncertainty and intertemporal choice. Results show that the optimal investment strategy under the base scenario is to invest in the largest available plant approximately eight years into the option lifetime.FINERGY (Project 178374)Norwegian University of Science and Technology. Center for Sustainable Energy Studies (CenSES)National Science Foundation (U.S.). Graduate Research Fellowship ProgramResearch Council of Norway (Nordic Research Opportunity)National Science Foundation (U.S.) (Nordic Research Opportunity)Alfred P. Sloan FoundationElectric Power Research InstituteCarnegie Mellon Electricity Industry CenterDoris Duke Charitable FoundationNational Energy Technology Laboratory (U.S.)Carnegie Mellon University (Heinz Endowments to RenewElec program)National Science Foundation (U.S.) (Award no. SES-0345798

Uncertain Climate Policy Decisions and Investment Timing: Evidence from Small Hydropower Plants

Based on panel data of 214 licenses to construct small hydropower plants, we examine whether uncertainty with respect to the introduction of a market for renewable energy certificates affected the timing of investments in Norway from 2001 to 2010. Using regression analysis, we find that (1) investors owning a portfolio of licenses acted in accordance with a real options investment rule, and uncertain climate policy decisions delayed their investment rate; and (2) investors owning a single license acted in accordance with a traditional net present value investment rule, focusing on the value of the immediate investment and ignoring policy uncertainty

Uncertain Climate Policy Decisions and Investment Timing: Evidence from Small Hydropower Plants

Based on panel data of 214 licenses to construct small hydropower plants, we examine whether uncertainty with respect to the introduction of a market for renewable energy certificates affected the timing of investments in Norway from 2001 to 2010. Using regression analysis, we find that (1) investors owning a portfolio of licenses acted in accordance with a real options investment rule, and uncertain climate policy decisions delayed their investment rate; and (2) investors owning a single license acted in accordance with a traditional net present value investment rule, focusing on the value of the immediate investment and ignoring policy uncertainty

Optimal investment timing and capacity choice for pumped hydropower storage

Pumped hydropower storage can smooth output from intermittent renewable electricity generators and facilitate their large-scale use in energy systems. Germany has aggressive plans for wind power expansion, and pumped storage ramps quickly enough to smooth wind power and could profit from arbitrage on the short-term price fluctuations wind power strengthens. We consider five capacity alternatives for a pumped storage facility in Norway that practices arbitrage in the German spot market. Price forecasts given increased wind capacity are used to calculate profit-maximizing production schedules and annual revenue streams. Real options theory is used to value the investment opportunity, since unlike net present value, it accounts for uncertainty and intertemporal choice. Results show that the optimal investment strategy under the base scenario is to invest in the largest available plant approximately eight years into the option lifetime

Har vi tid til å vente på en sjøkabel i Hardanger?

Artikkelen er gjengitt med tillatelse fra Samfunnsøkonomenes Forening.Sjøkabel framfor luftspenn mellom Sima og Samnanger i Hardanger vil forsinke den nye strømforbindelsen fram til Bergensområdet. Et sentralt spørsmål i valget mellom sjøkabel og luftlinje er derfor hva som blir konsekvensene av forsinkelsen. Hvor lenge må man vente? Hva skjer med forsyningen av strøm til Bergensområdet i ventetiden? Kan man regne med kortere eller lengre perioder med strømavbrudd? Hvis strømforsyningen blir vanskelig, er det i så fall noe en kan gjøre for å forbedre situasjon? Dette var spørsmål som et av Sjøkabelutvalgene (Utvalg III), nedsatt av Olje- og energidepartementet, skulle besvare. Denne artikkelen er basert på hovedkonklusjonene fra utvalgets rapport

Har vi tid til å vente på en sjøkabel i Hardanger?

Sjøkabel framfor luftspenn mellom Sima og Samnanger i Hardanger vil forsinke den nye strømforbindelsen fram til Bergensområdet. Et sentralt spørsmål i valget mellom sjøkabel og luftlinje er derfor hva som blir konsekvensene av forsinkelsen. Hvor lenge må man vente? Hva skjer med forsyningen av strøm til Bergensområdet i ventetiden? Kan man regne med kortere eller lengre perioder med strømavbrudd? Hvis strømforsyningen blir vanskelig, er det i så fall noe en kan gjøre for å forbedre situasjon? Dette var spørsmål som et av Sjøkabelutvalgene (Utvalg III), nedsatt av Olje- og energidepartementet, skulle besvare. Denne artikkelen er basert på hovedkonklusjonene fra utvalgets rapport