Seasonality and valuation of renewable energy projects in a two factor model
Chi Truong,
Stefan Trueck,
David Pitt and
Rohan Best
Applied Energy, 2025, vol. 389, issue C, No S030626192500399X
Abstract:
Project valuation plays a key role in designing policies that support the uptake of renewable energy. Evaluating renewable energy projects is, however, challenging due to the intermittent nature of renewable energy generation and the unique characteristics of electricity prices. We introduce a new modeling framework for evaluating these projects, allowing for important aspects of spot electricity prices and renewable energy sources, including mean reversion, time-of-day variation, and seasonal fluctuations. Electricity prices can also have negative values as well as spikes. We show that a renewable energy project can be decomposed into a number of operational options, and derive the closed-form formula for these options to facilitate efficient evaluation of the project. We then propose and examine various approaches for modeling intermittent generation from renewables and apply the developed models to case studies of solar and wind investment projects in four different regions of the Australian National Electricity Market (NEM). Our findings suggest that the way seasonality in spot electricity prices and the output from renewable generation is modelled can have substantial impact on the valuation of investment into renewable energy sources. We also find that taking into account the correlation between renewable energy generation and spot electricity prices will play an increasing role in valuation, since the output from renewables can be expected to increase substantially in the future.
Keywords: Jensen effect; Cost benefit analysis; Deseasonalized; Renewable energy; Climate change (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S030626192500399X
Full text for ScienceDirect subscribers only
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:appene:v:389:y:2025:i:c:s030626192500399x
Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/journaldescription.cws_home/405891/bibliographic
http://www.elsevier. ... 405891/bibliographic
DOI: 10.1016/j.apenergy.2025.125669
Access Statistics for this article
Applied Energy is currently edited by J. Yan
More articles in Applied Energy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().