Energiewende @ Risk: On the Continuation of Renewable Power Generation at the End of Public Policy Support

FCN Working Paper No. 05/2019

41 Pages Posted: 29 Jan 2020

See all articles by Barbara Glensk

Barbara Glensk

RWTH Aachen University

Reinhard Madlener

RWTH Aachen University

Date Written: May 2019

Abstract

This paper aims to analyze what happens with renewable energy power plants, such as onshore wind, photovoltaics and biomass, when the public policy support based on the Renewable Energy Law expires. With its expiration the first renewable energy (and especially onshore wind) power plants will have to be scrutinized whether they can economically continue operation, whether they have to be repowered, or whether they need to be decommissioned. The relative merits of these three alternatives are evaluated by applying real options analysis. In contrast to traditional project evaluation techniques, the real options approach takes advantage of the use of uncertain parameters included in the model, such as the development of the electricity price or electricity output. The results obtained suggest that parameters such as the level of future operation and maintenance costs, the expected development of the electricity price at the spot market, and the interrelations between these, as well as the development of the electricity output from renewables can significantly affect the profitability of these power plants and thus impact the decision about their further optimal operation.

Keywords: Renewable energy, Real options, Energy market, Policy support, Repowering

JEL Classification: Q01, Q21, Q40, Q41, Q48

Suggested Citation

Glensk, Barbara and Madlener, Reinhard, Energiewende @ Risk: On the Continuation of Renewable Power Generation at the End of Public Policy Support (May 2019). FCN Working Paper No. 05/2019. Available at SSRN: https://ssrn.com/abstract=3515413 or http://dx.doi.org/10.2139/ssrn.3515413

Barbara Glensk

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
Mathieustraße 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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