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EOR
2008

Investment timing and optimal capacity choice for small hydropower projects

13 years 10 months ago
Investment timing and optimal capacity choice for small hydropower projects
This paper presents a method for assessing small hydropower projects that are subject to uncertain electricity prices. We present a real options-based method with continuous scaling, and we find that there is a unique price limit for initiating the project. If the current electricity price is below this limit it is never optimal to invest, but above this limit investment is made according to the function for optimal size. The connection between the real option and the physical properties of a small hydropower plant is dealt with using a spreadsheet model that performs a technical simulation of the production in a plant, based on all the important choices for such a plant. The main results of the spreadsheet are simulated production size and the investment costs, which are in turn used for finding the value of the real option and the price limit. The method is illustrated on three different Norwegian small hydropower projects. KEYWORDS OR in Energy, Real Options, Continuous Scaling, Pr...
Thor Bøckman, Stein-Erik Fleten, Erik Juliu
Added 10 Dec 2010
Updated 10 Dec 2010
Type Journal
Year 2008
Where EOR
Authors Thor Bøckman, Stein-Erik Fleten, Erik Juliussen, Håvard J. Langhammer, Ingemar Revdal
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