IDEAS home Printed from https://ideas.repec.org/a/eee/jrpoli/v63y2019ic7.html
   My bibliography  Save this article

The economy of wind-integrated-energy-storage projects in China's upcoming power market: A real options approach

Author

Listed:
  • Liu, Yuanxin
  • Zheng, Ruijin
  • Chen, Sisi
  • Yuan, Jiahai

Abstract

Renewable energy is growing quickly in China, but curtailment is serious due to insufficient system flexibility. Integrated energy storage system is one of effective approaches to improve production profile and alleviate curtailment. In this study, we evaluate the value of wind-integrated energy storage (WIES) projects by combining methods of real options and net present value. We draw appropriate investment timing based on the dynamics of storage cost and degree of marketization. The medium-marketization or even high-marketization scenarios examined in this study will appear in five years. The results indicate that with a 10% learning rate of energy storage cost, the WIES project will be commercially justified in one year under high-level marketization scenario and in 3 years under medium-level marketization. Finally, we conclude with policy implications on market integration of renewable energy in China.

Suggested Citation

  • Liu, Yuanxin & Zheng, Ruijin & Chen, Sisi & Yuan, Jiahai, 2019. "The economy of wind-integrated-energy-storage projects in China's upcoming power market: A real options approach," Resources Policy, Elsevier, vol. 63(C), pages 1-1.
    • Handle: RePEc:eee:jrpoli:v:63:y:2019:i:c:7
    DOI: 10.1016/j.resourpol.2019.101434
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301420719301680
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.resourpol.2019.101434?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. Jiahai Yuan, 2016. "Wind energy in China: Estimating the potential," Nature Energy, Nature, vol. 1(7), pages 1-2, July.
    2. Yuan, Jiahai & Li, Peng & Wang, Yang & Liu, Qian & Shen, Xinyi & Zhang, Kai & Dong, Liansai, 2016. "Coal power overcapacity and investment bubble in China during 2015–2020," Energy Policy, Elsevier, vol. 97(C), pages 136-144.
    3. Thompson, Matt & Barr, Drew, 2014. "Cut-off grade: A real options analysis," Resources Policy, Elsevier, vol. 42(C), pages 83-92.
    4. Ji, Qiang & Zhang, Dayong, 2019. "How much does financial development contribute to renewable energy growth and upgrading of energy structure in China?," Energy Policy, Elsevier, vol. 128(C), pages 114-124.
    5. Costa Lima, Gabriel A. & Suslick, Saul B., 2006. "Estimating the volatility of mining projects considering price and operating cost uncertainties," Resources Policy, Elsevier, vol. 31(2), pages 86-94, June.
    6. Kjaerland, Frode, 2007. "A real option analysis of investments in hydropower--The case of Norway," Energy Policy, Elsevier, vol. 35(11), pages 5901-5908, November.
    7. Wang, Zhongying & Qin, Haiyan & Lewis, Joanna I., 2012. "China's wind power industry: Policy support, technological achievements, and emerging challenges," Energy Policy, Elsevier, vol. 51(C), pages 80-88.
    8. Yuan, Jiahai & Sun, Shenghui & Shen, Jiakun & Xu, Yan & Zhao, Changhong, 2014. "Wind power supply chain in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 39(C), pages 356-369.
    9. K. J. Arrow, 1971. "The Economic Implications of Learning by Doing," Palgrave Macmillan Books, in: F. H. Hahn (ed.), Readings in the Theory of Growth, chapter 11, pages 131-149, Palgrave Macmillan.
    10. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    11. Yuan, Jiahai & Zhao, Changhong & Yu, Shunkun & Hu, Zhaoguang, 2007. "Electricity consumption and economic growth in China: Cointegration and co-feature analysis," Energy Economics, Elsevier, vol. 29(6), pages 1179-1191, November.
    12. Yuan, Jiahai & Xu, Yan & Hu, Zheng & Zhao, Changhong & Xiong, Minpeng & Guo, Jingsheng, 2014. "Peak energy consumption and CO2 emissions in China," Energy Policy, Elsevier, vol. 68(C), pages 508-523.
    13. Zhang, Sufang & Andrews-Speed, Philip & Li, Sitao, 2018. "To what extent will China's ongoing electricity market reforms assist the integration of renewable energy?," Energy Policy, Elsevier, vol. 114(C), pages 165-172.
    14. Luburić, Zora & Pandžić, Hrvoje & Plavšić, Tomislav & Teklić, Ljupko & Valentić, Vladimir, 2018. "Role of energy storage in ensuring transmission system adequacy and security," Energy, Elsevier, vol. 156(C), pages 229-239.
    15. Moradi, Jalal & Shahinzadeh, Hossein & Khandan, Amirsalar & Moazzami, Majid, 2017. "A profitability investigation into the collaborative operation of wind and underwater compressed air energy storage units in the spot market," Energy, Elsevier, vol. 141(C), pages 1779-1794.
    16. Zifa Liu & Wenhua Zhang & Changhong Zhao & Jiahai Yuan, 2015. "The Economics of Wind Power in China and Policy Implications," Energies, MDPI, vol. 8(2), pages 1-18, February.
    17. Ye, Liang-Cheng & Lin, Hai Xiang & Tukker, Arnold, 2019. "Future scenarios of variable renewable energies and flexibility requirements for thermal power plants in China," Energy, Elsevier, vol. 167(C), pages 708-714.
    18. Yuan, Jiahai & Xu, Yan & Zhang, Xingping & Hu, Zheng & Xu, Ming, 2014. "China's 2020 clean energy target: Consistency, pathways and policy implications," Energy Policy, Elsevier, vol. 65(C), pages 692-700.
    19. Odetayo, Babatunde & MacCormack, John & Rosehart, W.D. & Zareipour, Hamidreza, 2018. "A real option assessment of flexibilities in the integrated planning of natural gas distribution network and distributed natural gas-fired power generations," Energy, Elsevier, vol. 143(C), pages 257-272.
    20. Zhao, Xiaoli & Wang, Feng & Wang, Mei, 2012. "Large-scale utilization of wind power in China: Obstacles of conflict between market and planning," Energy Policy, Elsevier, vol. 48(C), pages 222-232.
    21. Weber, Christoph, 2010. "Adequate intraday market design to enable the integration of wind energy into the European power systems," Energy Policy, Elsevier, vol. 38(7), pages 3155-3163, July.
    22. Reuter, Wolf Heinrich & Fuss, Sabine & Szolgayová, Jana & Obersteiner, Michael, 2012. "Investment in wind power and pumped storage in a real options model," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(4), pages 2242-2248.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wadim Strielkowski & Irina Firsova & Inna Lukashenko & Jurgita Raudeliūnienė & Manuela Tvaronavičienė, 2021. "Effective Management of Energy Consumption during the COVID-19 Pandemic: The Role of ICT Solutions," Energies, MDPI, vol. 14(4), pages 1-17, February.
    2. 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).
    3. Yang, Changhui & Fu, Yuting & He, Lijun & Jiang, Qi & Cui, Yangyu, 2024. "Real options analysis for regional investment decisions of household PV-ESS in China," Energy, Elsevier, vol. 293(C).
    4. Huijia Yang & Weiguang Fan & Guangyu Qin & Zhenyu Zhao, 2021. "A Fuzzy-ANP Approach for Comprehensive Benefit Evaluation of Grid-Side Commercial Storage Project," Energies, MDPI, vol. 14(4), pages 1-17, February.
    5. Jiang, Xin & Jin, Yang & Zheng, Xueyuan & Hu, Guobao & Zeng, Qingshan, 2020. "Optimal configuration of grid-side battery energy storage system under power marketization," Applied Energy, Elsevier, vol. 272(C).
    6. Li, Longxi & Cao, Xilin, 2022. "Comprehensive effectiveness assessment of energy storage incentive mechanisms for PV-ESS projects based on compound real options," Energy, Elsevier, vol. 239(PA).
    7. 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).
    8. Juan D. Saldarriaga-Loaiza & Sergio D. Saldarriaga-Zuluaga & Jesús M. López-Lezama & Fernando Villada-Duque & Nicolás Muñoz-Galeano, 2022. "Optimal Structuring of Investments in Electricity Generation Projects in Colombia with Non-Conventional Energy Sources," Sustainability, MDPI, vol. 14(22), pages 1-21, November.

    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. Balibrea-Iniesta, José & Rodríguez-Monroy, Carlos & Núñez-Guerrero, Yilsy María, 2021. "Economic analysis of the German regulation for electrical generation projects from biogas applying the theory of real options," Energy, Elsevier, vol. 231(C).
    2. 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.
    3. Yan Xu & Junjie Kang & Jiahai Yuan, 2018. "The Prospective of Nuclear Power in China," Sustainability, MDPI, vol. 10(6), pages 1-21, June.
    4. Wang, Delu & Wan, Kaidi & Song, Xuefeng, 2020. "Understanding coal miners’ livelihood vulnerability to declining coal demand: Negative impact and coping strategies," Energy Policy, Elsevier, vol. 138(C).
    5. 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).
    6. 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.
    7. Qingbin Yu & Yuliang Dong & Yanjun Du & Jiahai Yuan & Fang Fang, 2022. "Optimizing Operation Strategy in a Simulated High-Proportion Wind Power Wind–Coal Combined Base Load Power Generation System under Multiple Scenes," Energies, MDPI, vol. 15(21), pages 1-21, October.
    8. Jiahai Yuan & Mengya Wu & Weirong Zhang & Yu Guo & Minpeng Xiong, 2018. "Coal Power Environmental Stress Testing in China," Sustainability, MDPI, vol. 10(7), pages 1-19, June.
    9. Felipe Isaza Cuervo & Sergio Botero Boterob, 2014. "Aplicación de las opciones reales en la toma de decisiones en los mercados de electricidad," Estudios Gerenciales, Universidad Icesi, November.
    10. Savolainen, Jyrki, 2016. "Real options in metal mining project valuation: Review of literature," Resources Policy, Elsevier, vol. 50(C), pages 49-65.
    11. Gaudard, Ludovic, 2015. "Pumped-storage project: A short to long term investment analysis including climate change," Renewable and Sustainable Energy Reviews, Elsevier, vol. 49(C), pages 91-99.
    12. Zhu, Yanlei & Song, Yan & Yuan, Jiahai, 2021. "Structural distortion and the shortage of peak-load power resources in China: A screening curve approach and case study of Shandong Province," Utilities Policy, Elsevier, vol. 70(C).
    13. Jiahai Yuan & Yurong Zeng & Xiaoxuan Guo & Yu Ai & Minpeng Xiong, 2018. "Electric Power Investment Risk Assessment for Belt and Road Initiative Nations," Sustainability, MDPI, vol. 10(9), pages 1-21, August.
    14. Dakpogan, Arnaud & Smit, Eon, 2018. "The effect of electricity losses on GDP in Benin," MPRA Paper 89545, University Library of Munich, Germany.
    15. Lin, Jiang & Xu Liu, & Gang He,, 2020. "Regional electricity demand and economic transition in China," Utilities Policy, Elsevier, vol. 64(C).
    16. Mo, Jian-Lei & Agnolucci, Paolo & Jiang, Mao-Rong & Fan, Ying, 2016. "The impact of Chinese carbon emission trading scheme (ETS) on low carbon energy (LCE) investment," Energy Policy, Elsevier, vol. 89(C), pages 271-283.
    17. Zhao, Changhong & Zhang, Weirong & Wang, Yang & Liu, Qilin & Guo, Jingsheng & Xiong, Minpeng & Yuan, Jiahai, 2017. "The economics of coal power generation in China," Energy Policy, Elsevier, vol. 105(C), pages 1-9.
    18. Song, Feng & Bi, De & Wei, Chu, 2019. "Market segmentation and wind curtailment: An empirical analysis," Energy Policy, Elsevier, vol. 132(C), pages 831-838.
    19. Yuan, Jiahai & Wang, Yang & Zhang, Weirong & Zhao, Changhong & Liu, Qian & Shen, Xinyi & Zhang, Kai & Dong, Liansai, 2017. "Will recent boom in coal power lead to a bust in China? A micro-economic analysis," Energy Policy, Elsevier, vol. 108(C), pages 645-656.
    20. Yuan, Jiahai & Lei, Qi & Xiong, Minpeng & Guo, Jingsheng & Hu, Zheng, 2016. "The prospective of coal power in China: Will it reach a plateau in the coming decade?," Energy Policy, Elsevier, vol. 98(C), pages 495-504.

    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:jrpoli:v:63:y:2019:i:c:7. 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/inca/30467 .

    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.