IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v131y2024ics0140988324001051.html
   My bibliography  Save this article

An option game model applicable to multi-agent cooperation investment in energy storage projects

Author

Listed:
  • Zhang, Mingming
  • Nie, Jinchen
  • Su, Bin
  • Liu, Liyun

Abstract

This paper proposes an option game model that is applicable to multi-agent cooperation investment in energy storage projects. A power grid enterprise and power generation enterprise are assumed to act as the cooperation investors. A revenue sharing coefficient and cost distribution coefficient are introduced to simulate the realistic cooperation behavior of energy storage investment. The uncertainty of electricity prices and investment cost are also integrated into the model. The proposed model is used to carry out a comparative static analysis and a case study. The results show the investment value and the optimal investment trigger for the cooperation investment. Compared with single-agent investment, cooperation investment will bring high investment value for the power generation enterprise, while the investment trigger would also be raised. The revenue sharing coefficient is positively related to the investment value and the investment trigger of the power grid enterprise. The cost distribution coefficient is positively related to the investment trigger of the power generation enterprise, but negatively related to the power grid enterprise. The volatility of electricity prices is positively related to the investment trigger, both for the power generation enterprise and the power grid enterprise. Also, the investment trigger of the power generation enterprise is more affected by the volatility of electricity prices. Learning effects and subsidy can reduce the investment trigger.

Suggested Citation

  • Zhang, Mingming & Nie, Jinchen & Su, Bin & Liu, Liyun, 2024. "An option game model applicable to multi-agent cooperation investment in energy storage projects," Energy Economics, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:eneeco:v:131:y:2024:i:c:s0140988324001051
    DOI: 10.1016/j.eneco.2024.107397
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988324001051
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2024.107397?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Dulluri, Sandeep & Raghavan, N.R. Srinivasa, 2008. "Collaboration in tool development and capacity investments in high technology manufacturing networks," European Journal of Operational Research, Elsevier, vol. 187(3), pages 962-977, June.
    2. Fridrik M. Baldursson & Ewa Lazarczyk & Marten Ovaere & Stef Proost, 2018. "Cross-Border Exchange and Sharing of Generation Reserve Capacity," The Energy Journal, , vol. 39(4), pages 57-84, July.
    3. Wu, Yunna & Zhang, Ting & Gao, Rui & Wu, Chenghao, 2021. "Portfolio planning of renewable energy with energy storage technologies for different applications from electricity grid," Applied Energy, Elsevier, vol. 287(C).
    4. Detert, Neal & Kotani, Koji, 2013. "Real options approach to renewable energy investments in Mongolia," Energy Policy, Elsevier, vol. 56(C), pages 136-150.
    5. Farmer, J. Doyne & Lafond, François, 2016. "How predictable is technological progress?," Research Policy, Elsevier, vol. 45(3), pages 647-665.
    6. Elena Fumagalli, 2016. "Energy investment: The many lives of energy storage," Nature Energy, Nature, vol. 1(7), pages 1-2, July.
    7. Zhu, Lei & Li, Li & Su, Bin, 2021. "The price-bidding strategy for investors in a renewable auction: An option games–based study," Energy Economics, Elsevier, vol. 100(C).
    8. Churkin, Andrey & Bialek, Janusz & Pozo, David & Sauma, Enzo & Korgin, Nikolay, 2021. "Review of Cooperative Game Theory applications in power system expansion planning," Renewable and Sustainable Energy Reviews, Elsevier, vol. 145(C).
    9. Zhu, Tao & Wills, Richard G.A. & Lot, Roberto & Kong, Xiaodan & Yan, Xingda, 2021. "Optimal sizing and sensitivity analysis of a battery-supercapacitor energy storage system for electric vehicles," Energy, Elsevier, vol. 221(C).
    10. Lambrecht, Bart & Perraudin, William, 2003. "Real options and preemption under incomplete information," Journal of Economic Dynamics and Control, Elsevier, vol. 27(4), pages 619-643, February.
    11. Palizban, Omid & Kauhaniemi, Kimmo & Guerrero, Josep M., 2014. "Microgrids in active network management—Part I: Hierarchical control, energy storage, virtual power plants, and market participation," Renewable and Sustainable Energy Reviews, Elsevier, vol. 36(C), pages 428-439.
    12. He, Yongxiu & Pang, Yuexia & Li, Xinmin & Zhang, Minhui, 2018. "Dynamic subsidy model of photovoltaic distributed generation in China," Renewable Energy, Elsevier, vol. 118(C), pages 555-564.
    13. Pandžić, H. & Dvorkin, Y. & Carrión, M., 2018. "Investments in merchant energy storage: Trading-off between energy and reserve markets," Applied Energy, Elsevier, vol. 230(C), pages 277-286.
    14. Zhang, Xiaoling & Shen, Liyin & Chan, Sum Yee, 2012. "The diffusion of solar energy use in HK: What are the barriers?," Energy Policy, Elsevier, vol. 41(C), pages 241-249.
    15. Haas, J. & Cebulla, F. & Cao, K. & Nowak, W. & Palma-Behnke, R. & Rahmann, C. & Mancarella, P., 2017. "Challenges and trends of energy storage expansion planning for flexibility provision in low-carbon power systems – a review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 80(C), pages 603-619.
    16. Chen, Weidong & Zeng, Yu & Xu, Chongqing, 2019. "Energy storage subsidy estimation for microgrid: A real option game-theoretic approach," Applied Energy, Elsevier, vol. 239(C), pages 373-382.
    17. John R. Graham & Michelle Hanlon & Terry Shevlin, 2011. "Real Effects of Accounting Rules: Evidence from Multinational Firms’ Investment Location and Profit Repatriation Decisions," Journal of Accounting Research, Wiley Blackwell, vol. 49(1), pages 137-185, March.
    18. Tian, Lixin & Pan, Jianglai & Du, Ruijin & Li, Wenchao & Zhen, Zaili & Qibing, Gao, 2017. "The valuation of photovoltaic power generation under carbon market linkage based on real options," Applied Energy, Elsevier, vol. 201(C), pages 354-362.
    19. Notton, Gilles & Nivet, Marie-Laure & Voyant, Cyril & Paoli, Christophe & Darras, Christophe & Motte, Fabrice & Fouilloy, Alexis, 2018. "Intermittent and stochastic character of renewable energy sources: Consequences, cost of intermittence and benefit of forecasting," Renewable and Sustainable Energy Reviews, Elsevier, vol. 87(C), pages 96-105.
    20. Otsuki, Takashi & Mohd Isa, Aishah Binti & Samuelson, Ralph D., 2016. "Electric power grid interconnections in Northeast Asia: A quantitative analysis of opportunities and challenges," Energy Policy, Elsevier, vol. 89(C), pages 311-329.
    21. de Sisternes, Fernando J. & Jenkins, Jesse D. & Botterud, Audun, 2016. "The value of energy storage in decarbonizing the electricity sector," Applied Energy, Elsevier, vol. 175(C), pages 368-379.
    22. Ida Bakke & Stein-Erik Fleten & Lars Ivar Hagfors & Verena Hagspiel & Beate Norheim & Sonja Wogrin, 2016. "Investment in electric energy storage under uncertainty: a real options approach," Computational Management Science, Springer, vol. 13(3), pages 483-500, July.
    23. Zhang, Mingming & Liu, Liyun & Wang, Qunwei & Zhou, Dequn, 2020. "Valuing investment decisions of renewable energy projects considering changing volatility," Energy Economics, Elsevier, vol. 92(C).
    24. Dina Khastieva & Ilias Dimoulkas & Mikael Amelin, 2018. "Optimal Investment Planning of Bulk Energy Storage Systems," Sustainability, MDPI, vol. 10(3), pages 1-23, February.
    25. Somayeh Heydari & Nick Ovenden & Afzal Siddiqui, 2012. "Real options analysis of investment in carbon capture and sequestration technology," Computational Management Science, Springer, vol. 9(1), pages 109-138, February.
    26. Ibrahim, H. & Ilinca, A. & Perron, J., 2008. "Energy storage systems--Characteristics and comparisons," Renewable and Sustainable Energy Reviews, Elsevier, vol. 12(5), pages 1221-1250, June.
    27. Alvarez, Luis H. R., 1999. "Optimal exit and valuation under demand uncertainty: A real options approach," European Journal of Operational Research, Elsevier, vol. 114(2), pages 320-329, April.
    28. Siddiqui, Afzal & Fleten, Stein-Erik, 2010. "How to proceed with competing alternative energy technologies: A real options analysis," Energy Economics, Elsevier, vol. 32(4), pages 817-830, July.
    29. Wang, Jianxiao & Zhong, Haiwang & Ma, Ziming & Xia, Qing & Kang, Chongqing, 2017. "Review and prospect of integrated demand response in the multi-energy system," Applied Energy, Elsevier, vol. 202(C), pages 772-782.
    30. O. Schmidt & A. Hawkes & A. Gambhir & I. Staffell, 2017. "The future cost of electrical energy storage based on experience rates," Nature Energy, Nature, vol. 2(8), pages 1-8, August.
    31. Zhang, M.M. & Zhou, P. & Zhou, D.Q., 2016. "A real options model for renewable energy investment with application to solar photovoltaic power generation in China," Energy Economics, Elsevier, vol. 59(C), pages 213-226.
    32. Han, Xiaojuan & Zhang, Hua & Yu, Xiaoling & Wang, Lina, 2016. "Economic evaluation of grid-connected micro-grid system with photovoltaic and energy storage under different investment and financing models," Applied Energy, Elsevier, vol. 184(C), pages 103-118.
    33. Barbry, Adrien & Anjos, Miguel F. & Delage, Erick & Schell, Kristen R., 2019. "Robust self-scheduling of a price-maker energy storage facility in the New York electricity market," Energy Economics, Elsevier, vol. 78(C), pages 629-646.
    34. Adamson, Seabron & Noe, Thomas & Parker, Geoffrey, 2010. "Efficiency of financial transmission rights markets in centrally coordinated periodic auctions," Energy Economics, Elsevier, vol. 32(4), pages 771-778, July.
    35. Kitapbayev, Yerkin & Moriarty, John & Mancarella, Pierluigi, 2015. "Stochastic control and real options valuation of thermal storage-enabled demand response from flexible district energy systems," Applied Energy, Elsevier, vol. 137(C), pages 823-831.
    36. Yu, Nanpeng & Foggo, Brandon, 2017. "Stochastic valuation of energy storage in wholesale power markets," Energy Economics, Elsevier, vol. 64(C), pages 177-185.
    37. Karhinen, S. & Huuki, H., 2019. "Private and social benefits of a pumped hydro energy storage with increasing amount of wind power," Energy Economics, Elsevier, vol. 81(C), pages 942-959.
    38. Lee, Shun-Chung & Shih, Li-Hsing, 2010. "Renewable energy policy evaluation using real option model -- The case of Taiwan," Energy Economics, Elsevier, vol. 32(Supplemen), pages 67-78, September.
    39. Steven T. Anderson & Daniel Friedman & Ryan Oprea, 2010. "Preemption Games: Theory and Experiment," American Economic Review, American Economic Association, vol. 100(4), pages 1778-1803, September.
    40. Roger Adkins & Dean Paxson, 2017. "The effects of an uncertain abandonment value on the investment decision," The European Journal of Finance, Taylor & Francis Journals, vol. 23(12), pages 1083-1106, September.
    41. Gorenstein Dedecca, João & Lumbreras, Sara & Ramos, Andrés & Hakvoort, Rudi A. & Herder, Paulien M., 2018. "Expansion planning of the North Sea offshore grid: Simulation of integrated governance constraints," Energy Economics, Elsevier, vol. 72(C), pages 376-392.
    42. Abadie, Luis M. & Chamorro, José M., 2008. "European CO2 prices and carbon capture investments," Energy Economics, Elsevier, vol. 30(6), pages 2992-3015, November.
    43. Arnd Huchzermeier & Christoph H. Loch, 2001. "Project Management Under Risk: Using the Real Options Approach to Evaluate Flexibility in R...D," Management Science, INFORMS, vol. 47(1), pages 85-101, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhang, Mingming & Liu, Liyun & Wang, Qunwei & Zhou, Dequn, 2020. "Valuing investment decisions of renewable energy projects considering changing volatility," Energy Economics, Elsevier, vol. 92(C).
    2. Zhang, M.M. & Wang, Qunwei & Zhou, Dequn & Ding, H., 2019. "Evaluating uncertain investment decisions in low-carbon transition toward renewable energy," Applied Energy, Elsevier, vol. 240(C), pages 1049-1060.
    3. Zhang, M.M. & Zhou, D.Q. & Zhou, P. & Chen, H.T., 2017. "Optimal design of subsidy to stimulate renewable energy investments: The case of China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 71(C), pages 873-883.
    4. Chen, Weidong & Zeng, Yu & Xu, Chongqing, 2019. "Energy storage subsidy estimation for microgrid: A real option game-theoretic approach," Applied Energy, Elsevier, vol. 239(C), pages 373-382.
    5. Àlex Alonso-Travesset & Diederik Coppitters & Helena Martín & Jordi de la Hoz, 2023. "Economic and Regulatory Uncertainty in Renewable Energy System Design: A Review," Energies, MDPI, vol. 16(2), pages 1-30, January.
    6. Zhang, M.M. & Zhou, P. & Zhou, D.Q., 2016. "A real options model for renewable energy investment with application to solar photovoltaic power generation in China," Energy Economics, Elsevier, vol. 59(C), pages 213-226.
    7. Kozlova, Mariia, 2017. "Real option valuation in renewable energy literature: Research focus, trends and design," Renewable and Sustainable Energy Reviews, Elsevier, vol. 80(C), pages 180-196.
    8. Zhang, Mingming & Zhou, Dequn & Zhou, Peng, 2014. "A real option model for renewable energy policy evaluation with application to solar PV power generation in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 40(C), pages 944-955.
    9. Maeda, Mansaku & Watts, David, 2019. "The unnoticed impact of long-term cost information on wind farms’ economic value in the USA. – A real option analysis," Applied Energy, Elsevier, vol. 241(C), pages 540-547.
    10. Lai, Chun Sing & Locatelli, Giorgio, 2021. "Valuing the option to prototype: A case study with Generation Integrated Energy Storage," Energy, Elsevier, vol. 217(C).
    11. Wang, Xingwei & Cai, Yanpeng & Dai, Chao, 2014. "Evaluating China's biomass power production investment based on a policy benefit real options model," Energy, Elsevier, vol. 73(C), pages 751-761.
    12. Zhang, Mingming & Tang, Yamei & Liu, Liyun & Zhou, Dequn, 2022. "Optimal investment portfolio strategies for power enterprises under multi-policy scenarios of renewable energy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 154(C).
    13. Yu Zeng & Weidong Chen, 2019. "The Determination of Concession Period for Build-Operate-Transfer Solar Photovoltaic Power Project under Policy Incentives: A Case Study of China," Energies, MDPI, vol. 12(18), pages 1-23, September.
    14. Andreolli, Francesca & D’Alpaos, Chiara & Moretto, Michele, 2022. "Valuing investments in domestic PV-Battery Systems under uncertainty," Energy Economics, Elsevier, vol. 106(C).
    15. Moon, Yongma & Baran, Mesut, 2018. "Economic analysis of a residential PV system from the timing perspective: A real option model," Renewable Energy, Elsevier, vol. 125(C), pages 783-795.
    16. Mei, Bin & Wetzstein, Michael, 2017. "Burning wood pellets for US electricity generation? A regime switching analysis," Energy Economics, Elsevier, vol. 65(C), pages 434-441.
    17. Andreas Welling, 2017. "Green Finance: Recent developments, characteristics and important actors," FEMM Working Papers 170002, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    18. Herui Cui & Tian Zhao & Ruirui Wu, 2018. "An Investment Feasibility Analysis of CCS Retrofit Based on a Two-Stage Compound Real Options Model," Energies, MDPI, vol. 11(7), pages 1-19, July.
    19. Azevedo, Alcino & Paxson, Dean, 2014. "Developing real option game models," European Journal of Operational Research, Elsevier, vol. 237(3), pages 909-920.
    20. Assereto, Martina & Byrne, Julie, 2021. "No real option for solar in Ireland: A real option valuation of utility scale solar investment in Ireland," Renewable and Sustainable Energy Reviews, Elsevier, vol. 143(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:131:y:2024:i:c:s0140988324001051. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.