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

FCN Working Paper No. 17/2013

47 Pages Posted: 20 Sep 2017

See all articles by Sebastian Weibel

Sebastian Weibel

RWTH Aachen University

Reinhard Madlener

RWTH Aachen University

Date Written: July 1, 2015

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.

Keywords: Pumped storage hydro power, Hybrid power plant, Real option, Irreversible investment, Risk and uncertainty

JEL Classification: Q41

Suggested Citation

Weibel, Sebastian and Madlener, Reinhard, Cost-Effective Design of Ringwall Storage Hybrid Power Plants: A Real Options Analysis (July 1, 2015). FCN Working Paper No. 17/2013. Available at SSRN: https://ssrn.com/abstract=3039367 or http://dx.doi.org/10.2139/ssrn.3039367

Sebastian Weibel

RWTH Aachen University ( email )

Templergraben 55
52056 Aachen, 52056
Germany

Reinhard Madlener (Contact Author)

RWTH Aachen University ( email )

School of Business and Economics / E.ON ERC
Mathieustra├če 10
Aachen, 52074
Germany
+49 241 80 49 820 (Phone)
+49 241 80 49 829 (Fax)

HOME PAGE: http://www.eonerc.rwth-aachen.de/fcn

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