Energiewende @ Risk: On the Continuation of Renewable Power Generation at the End of Public Policy Support

This paper aims to analyze what happens with renewable energy power plants, such as onshore wind, photovoltaics and biomass, when the public policy support based on the Renewable Energy Law expires. With its expiration, the first renewable energy (and especially onshore wind) power plants will have to be scrutinized as to whether they can economically continue operation, whether they have to be repowered, or whether they need to be decommissioned. The relative merits of these three alternatives are evaluated by applying real options analysis. In contrast to traditional project evaluation techniques, the real options approach takes advantage of the use of uncertain parameters included in the model, such as the development of the electricity price or electricity output. The results obtained suggest that parameters such as the level of future operation and maintenance costs, the expected development of the electricity price at the spot market, and the interrelations between these, as well as the development of the electricity output from renewables can significantly affect the profitability of these power plants and thus impact the decision about their further optimal operation

Multi-Period Portfolio Optimization of Power Generation Assets

The liberalization and deregulation of the energy industry in the past decades have been significantly affected by changes in the strategies of energy firms. The traditionally used approach of cost minimization was no longer sufficient, risk and market behavior could no longer be ignored and the need for more appropriate optimization methods for uncertain environments was increased. Meanvariance portfolio (MVP) theory is one of the more advanced financial methods that has been successfully applied to the energy sector. Unfortunately, this static approach is inadequate for studying multi-stage investment decision problems. The methodology proposed in this paper considering power generation assets is based on the model introduced by Mulvey, who suggests a reallocation approach using the analysis of various scenarios. The adoption of this methodology to power generation assets allows us to capture the impact of variations in the economic and technical parameters considered. The results of our study show that the application of a model for selection of multi-period portfolio can indeed improve the decision making process. Especially for the case of adding new investments to the portfolio mix, this rebalancing model captures new entries very well. (original abstract

Energiewende @ Risk: On the Continuation of Renewable Power Generation at the End of Public Policy Support

This paper aims to analyze what happens with renewable energy power plants, such as onshore wind, photovoltaics and biomass, when the public policy support based on the Renewable Energy Law expires. With its expiration, the first renewable energy (and especially onshore wind) power plants will have to be scrutinized as to whether they can economically continue operation, whether they have to be repowered, or whether they need to be decommissioned. The relative merits of these three alternatives are evaluated by applying real options analysis. In contrast to traditional project evaluation techniques, the real options approach takes advantage of the use of uncertain parameters included in the model, such as the development of the electricity price or electricity output. The results obtained suggest that parameters such as the level of future operation and maintenance costs, the expected development of the electricity price at the spot market, and the interrelations between these, as well as the development of the electricity output from renewables can significantly affect the profitability of these power plants and thus impact the decision about their further optimal operation