Investment timing and optimal capacity choice for small hydropower projects

Thor Bøckman, Stein-Erik Fleten, Erik Juliussen, Håvard J. Langhammer and Ingemar Revdal

European Journal of Operational Research, 2008, vol. 190, issue 1, 255-267

Abstract: 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.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (93)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377-2217(07)00533-4
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Investment timing and optimal capacity choice for small hydropower projects (2006)
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:ejores:v:190:y:2008:i:1:p:255-267

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().