Financial Viability of Thermal Power Generation Plants in the Transition to Renewable Energy

James Duván Ramírez-Quintero, Yessenia Martínez-Ruiz and Diego Fernando Manotas-Duque
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James Duván Ramírez-Quintero: School of Industrial Engineering, Universidad del Valle, Cali, Colombia
Yessenia Martínez-Ruiz: School of Industrial Engineering, Universidad del Valle, Cali, Colombia
Diego Fernando Manotas-Duque: School of Industrial Engineering, Universidad del Valle, Cali, Colombia

International Journal of Energy Economics and Policy, 2024, vol. 14, issue 5, 73-84

Abstract: The energy transition will occur due to the natural decline in profitability of thermal power generation assets, and their place in the energy matrix will be taken over by renewable energies. Ensuring electric supply security, a cornerstone of the energy trilemma, is a priority for both developed and developing countries. Nations heavily reliant on hydrological resources employ thermal energy as a backup, making the exploration of financial feasibility for such projects pertinent. This study introduces an economic valuation model for a dispatchable thermal power generation plant in the Colombian market. Associated uncertainty is assessed based on revenue from market sales, bilateral contracts, and firm power remuneration – elements constituting the cash flow and converging into profitability and risk analysis. These are calculated through the Monte Carlo simulation methodology. Additionally, a sensitivity analysis is conducted, accounting for variables such as the "Reliability Payment" settlement price, capacity factor, and costs linked to coal supply. The results emphasize the need for firm power remuneration as a crucial incentive for the success of such projects. Furthermore, the criticality of dispatch level in relation to profitability is verified. Finally, the impact of coal taxes and supply negotiations on financial feasibility is assessed.

Keywords: Economic Valuation; Conventional Energies; Uncertainty (search for similar items in EconPapers)
JEL-codes: Q3 Q40 (search for similar items in EconPapers)
Date: 2024
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