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An optimization methodology for identifying robust process integration investments under uncertainty

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  • Svensson, Elin
  • Berntsson, Thore
  • Strömberg, Ann-Brith
  • Patriksson, Michael

Abstract

Uncertainties in future energy prices and policies strongly affect decisions on investments in process integration measures in industry. In this paper, we present a five-step methodology for the identification of robust investment alternatives incorporating explicitly such uncertainties in the optimization model. Methods for optimization under uncertainty (or, stochastic programming) are thus combined with a deep understanding of process integration and process technology in order to achieve a framework for decision-making concerning the investment planning of process integration measures under uncertainty. The proposed methodology enables the optimization of investments in energy efficiency with respect to their net present value or an environmental objective. In particular, as a result of the optimization approach, complex investment alternatives, allowing for combinations of energy efficiency measures, can be analyzed. Uncertainties as well as time-dependent parameters, such as energy prices and policies, are modelled using a scenario-based approach, enabling the identification of robust investment solutions. The methodology is primarily an aid for decision-makers in industry, but it will also provide insight for policy-makers into how uncertainties regarding future price levels and policy instruments affect the decisions on investments in energy efficiency measures.

Suggested Citation

  • Svensson, Elin & Berntsson, Thore & Strömberg, Ann-Brith & Patriksson, Michael, 2009. "An optimization methodology for identifying robust process integration investments under uncertainty," Energy Policy, Elsevier, vol. 37(2), pages 680-685, February.
    • Handle: RePEc:eee:enepol:v:37:y:2009:i:2:p:680-685
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    1. Svensson, Elin & Strömberg, Ann-Brith & Patriksson, Michael, 2011. "A model for optimization of process integration investments under uncertainty," Energy, Elsevier, vol. 36(5), pages 2733-2746.
    2. Dubinskas Petras & Urbšienė Laimutė, 2017. "Investment Portfolio Optimization by Applying a Genetic Algorithm-Based Approach," Ekonomika (Economics), Sciendo, vol. 96(2), pages 66-78, February.
    3. Tolis, Athanasios I. & Rentizelas, Athanasios A., 2011. "An impact assessment of electricity and emission allowances pricing in optimised expansion planning of power sector portfolios," Applied Energy, Elsevier, vol. 88(11), pages 3791-3806.
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    5. Ana Espinola-Arredondo & Felix Munoz-Garcia & Dolores Garrido, 2023. "Measuring regulatory errors from environmental policy uncertainty," Journal of Regulatory Economics, Springer, vol. 64(1), pages 48-65, December.
    6. Tolis, Athanasios I. & Rentizelas, Athanasios A. & Tatsiopoulos, Ilias P., 2010. "Optimisation of electricity energy markets and assessment of CO2 trading on their structure: A stochastic analysis of the Greek Power Sector," Renewable and Sustainable Energy Reviews, Elsevier, vol. 14(9), pages 2529-2546, December.
    7. Rentizelas, Athanasios A. & Tolis, Athanasios I. & Tatsiopoulos, Ilias P., 2012. "Investment planning in electricity production under CO2 price uncertainty," International Journal of Production Economics, Elsevier, vol. 140(2), pages 622-629.
    8. Milford, James & Henrion, Max & Hunter, Chad & Newes, Emily & Hughes, Caroline & Baldwin, Samuel F., 2022. "Energy sector portfolio analysis with uncertainty," Applied Energy, Elsevier, vol. 306(PA).
    9. Svensson, Elin & Berntsson, Thore, 2014. "The effect of long lead times for planning of energy efficiency and biorefinery technologies at a pulp mill," Renewable Energy, Elsevier, vol. 61(C), pages 12-16.
    10. Tolis, Athanasios & Doukelis, Aggelos & Tatsiopoulos, Ilias, 2010. "Stochastic interest rates in the analysis of energy investments: Implications on economic performance and sustainability," Applied Energy, Elsevier, vol. 87(8), pages 2479-2490, August.
    11. Svensson, Elin & Berntsson, Thore, 2011. "Planning future investments in emerging energy technologies for pulp mills considering different scenarios for their investment cost development," Energy, Elsevier, vol. 36(11), pages 6508-6519.

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