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A Real Options Approach to Determine the Optimal Choice Between Lifetime Extension and Repowering of Wind Turbines

In: Operations Research Proceedings 2019

Author

Listed:
  • Chris Stetter

    (Leibniz University Hannover)

  • Maximilian Heumann

    (Leibniz University Hannover)

  • Martin Westbomke

    (Institut für Integrierte Produktion Hannover gGmbH)

  • Malte Stonis

    (Institut für Integrierte Produktion Hannover gGmbH)

  • Michael H. Breitner

    (Leibniz University Hannover)

Abstract

The imminent end-of-funding for an enormous number of wind energy turbines in Germany until 2025 is confronting affected operators with the challenge of deciding whether to further extend the lifetime of old turbines or to repower and replace it with new and more efficient ones. By means of a real options approach, we combine two methods to address the question if extending the operational life of a turbine is economically viable, and if so, for how long until it is replaced by a new turbine. It may even be the case that repowering before leaving the renewable energy funding regime is more viable. The first method, which is the net present repowering value, determines whether replacing a turbine before the end of its useful life is financially worthwhile. The second method, which follows a real options approach, determines the optimal time to invest in the irreversible investment (i.e., replacing the turbine) under uncertainty. The combination allows for continuously evaluating the two options of lifetime extension and repowering in order to choose the most profitable end-of-funding strategy and timing. We finally demonstrate the relevance of our approach by applying it to an onshore wind farm in a case study.

Suggested Citation

  • Chris Stetter & Maximilian Heumann & Martin Westbomke & Malte Stonis & Michael H. Breitner, 2020. "A Real Options Approach to Determine the Optimal Choice Between Lifetime Extension and Repowering of Wind Turbines," Operations Research Proceedings, in: Janis S. Neufeld & Udo Buscher & Rainer Lasch & Dominik Möst & Jörn Schönberger (ed.), Operations Research Proceedings 2019, pages 291-297, Springer.
  • Handle: RePEc:spr:oprchp:978-3-030-48439-2_35
    DOI: 10.1007/978-3-030-48439-2_35
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    Cited by:

    1. Stetter, Chris & Wielert, Henrik & Breitner, Michael H., 2022. "Hidden repowering potential of non-repowerable onshore wind sites in Germany," Energy Policy, Elsevier, vol. 168(C).
    2. Isabel C. Gil-García & Ana Fernández-Guillamón & M. Socorro García-Cascales & Angel Molina-García, 2021. "A Multi-Factorial Review of Repowering Wind Generation Strategies," Energies, MDPI, vol. 14(19), pages 1-25, October.

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