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Cost-Effective Design of Ringwall Storage Hybrid Power Plants: A Real Options Analysis

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Abstract

We study the economic viability and optimal sizing and siting of a hybrid plant that combines a ringwall hydro storage system with wind and solar power plants (ringwall storage hybrid power plant, RSHPP). A real options model is introduced to analyze the economics of an onshore RSHPP, and in particular of the varying storage volume in light of the stochastic character of wind and solar power, as well as the optimal investment timing under uncertainty. In fact, many uncertainties arise in such a project. Energy production is determined by the stochastic character of wind and solar power, and affects the optimal size of the storage device. Monte Carlo simulation is performed to analyze the following sources of uncertainty: (i) wind intensity and solar irradiation; (ii) future electricity price; and (iii) investment costs. The results yield the optimal size of the storage device; the energy market on which the operator should sell the electricity generated; numerical examples for two different RSHPP scenarios; and a real options model for analyzing the opportunity to defer the project investment and thus to exploit the value of waiting.

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  • Weibel, Sebastian & Madlener, Reinhard, 2015. "Cost-Effective Design of Ringwall Storage Hybrid Power Plants: A Real Options Analysis," FCN Working Papers 17/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    • Handle: RePEc:ris:fcnwpa:2013_017
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    Cited by:

    1. Pringles, Rolando & Olsina, Fernando & Penizzotto, Franco, 2020. "Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based method," Renewable Energy, Elsevier, vol. 151(C), pages 846-864.
    2. Qüinny Soares Rocha & Rafaele Almeida Munis & Richardson Barbosa Gomes da Silva & Elí Wilfredo Zavaleta Aguilar & Danilo Simões, 2023. "Photovoltaic Solar Energy in Forest Nurseries: A Strategic Decision Based on Real Options Analysis," Sustainability, MDPI, vol. 15(5), pages 1-11, February.
    3. Cheng, Cheng & Wang, Zhen & Liu, Mingming & Chen, Qiang & Gbatu, Abimelech Paye & Ren, Xiaohang, 2017. "Defer option valuation and optimal investment timing of solar photovoltaic projects under different electricity market systems and support schemes," Energy, Elsevier, vol. 127(C), pages 594-610.
    4. 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.
    5. Michael Wessel & Reinhard Madlener & Christoph Hilgers, 2020. "Economic Feasibility of Semi-Underground Pumped Storage Hydropower Plants in Open-Pit Mines," Energies, MDPI, vol. 13(16), pages 1-38, August.
    6. Reinhard Madlener & Jan Martin Specht, 2020. "An Exploratory Economic Analysis of Underground Pumped-Storage Hydro Power Plants in Abandoned Deep Coal Mines," Energies, MDPI, vol. 13(21), pages 1-22, October.
    7. Kim, Kyeongseok & Park, Hyoungbae & Kim, Hyoungkwan, 2017. "Real options analysis for renewable energy investment decisions in developing countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 75(C), pages 918-926.
    8. Anna Carolina Martins & Marcelo de Carvalho Pereira & Roberto Pasqualino, 2023. "Renewable Electricity Transition: A Case for Evaluating Infrastructure Investments through Real Options Analysis in Brazil," Sustainability, MDPI, vol. 15(13), pages 1-24, July.

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    More about this item

    Keywords

    Pumped storage hydro power; Hybrid power plant; Real option; Irreversible investment; Risk and uncertainty;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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