Capacity Investment in Renewable Energy Technology with Supply Intermittency: Data Granularity Matters!

Shanshan Hu (), Gilvan C. Souza (), Mark E. Ferguson () and Wenbin Wang ()
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Shanshan Hu: Department of Operations and Decision Technologies, Kelley School of Business, Indiana University, Bloomington, Indiana 47405
Gilvan C. Souza: Department of Operations and Decision Technologies, Kelley School of Business, Indiana University, Bloomington, Indiana 47405
Mark E. Ferguson: Management Science Department, Moore School of Business, University of South Carolina, Columbia, South Carolina 29208
Wenbin Wang: Department of Operations Management, School of International Business Administration, Shanghai University of Finance and Economics, 200433 Shanghai, China

Manufacturing & Service Operations Management, 2015, vol. 17, issue 4, 480-494

Abstract: We study an organization’s one-time capacity investment in a renewable energy-producing technology with supply intermittency and net metering compensation. The renewable technology can be coupled with conventional technologies to form a capacity portfolio that is used to meet stochastic demand for energy. The technologies have different initial investments and operating costs, and the operating costs follow different stochastic processes. We show how to reduce this problem to a single-period decision problem and how to estimate the joint distribution of the stochastic factors using historical data. Importantly, we show that data granularity for renewable yield and electricity demand at a fine level, such as hourly, matters: Without energy storage, coarse data that does not reflect the intermittency of renewable generation may lead to an overinvestment in renewable capacity. We obtain solutions that are simple to compute, intuitive, and provide managers with a framework for evaluating the trade-offs of investing in renewable and conventional technologies. We illustrate our model using two case studies: one for investing in a solar rooftop system for a bank branch and another for investing in a solar thermal system for water heating in a hotel, along with a conventional natural gas heating system.

Keywords: supply intermittency; renewable energy; capacity investment; sustainability (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (38)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:17:y:2015:i:4:p:480-494

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