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On the evaluation of infrastructure investments: the case of electricity generation

Author

Listed:
  • Per-Olov JOHANSSON
  • Bengt KRISTRÖM
  • Kaj NYSTRÖM

Abstract

We derive general equilibrium cost-benefit rules for investment in a small power plant that needs (or does not need) carbon emission permits for production. Both atemporal and intertemporal models are considered, the latter showing e. g. that there exists a kind of option value also under certainty. Finally we introduce uncertainty by briefly discussing the concepts of quasi-option and option values and a switching possibility that is available for flexible power plants like hydropower ones which can easily be turned on and turned off.

Suggested Citation

  • Per-Olov JOHANSSON & Bengt KRISTRÖM & Kaj NYSTRÖM, 2009. "On the evaluation of infrastructure investments: the case of electricity generation," Departmental Working Papers 2009-024, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    • Handle: RePEc:mil:wpdepa:2009-024
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    More about this item

    Keywords

    Cost-benefit analysis; externalities; switching models;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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