Optimal investment timing and capacity choice for pumped hydropower storage
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Author(s)
Fertig, Emily
Doorman, Gerard
Apt, Jay
Heggedal, Ane Marte
Date Issued
December 2013
Journal
Energy Systems
Publisher
Springer Berlin Heidelberg
Citation
Fertig, Emily, Ane Marte Heggedal, Gerard Doorman, and Jay Apt. “Optimal Investment Timing and Capacity Choice for Pumped Hydropower Storage.” Energy Systems 5, no. 2 (December 27, 2013): 285–306.
Version
Author's final manuscript
Abstract
Pumped hydropower storage can smooth output from intermittent renewable electricity generators and facilitate their large-scale use in energy systems. Germany has aggressive plans for wind power expansion, and pumped storage ramps quickly enough to smooth wind power and could profit from arbitrage on the short-term price fluctuations wind power strengthens. We consider five capacity alternatives for a pumped storage facility in Norway that practices arbitrage in the German spot market. Price forecasts given increased wind capacity are used to calculate profit-maximizing production schedules and annual revenue streams. Real options theory is used to value the investment opportunity, since unlike net present value, it accounts for uncertainty and intertemporal choice. Results show that the optimal investment strategy under the base scenario is to invest in the largest available plant approximately eight years into the option lifetime.
MIT Department
Massachusetts Institute of Technology. Engineering Systems Division
Terms of Use
Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1007/s12667-013-0109-x
