Modeling Technology Adoption as an Irreversible Investment Under Uncertainty: The Case of the Turkish Electricity Supply Industry

Reinhard Madlener, Gürkan Kumbaroglu () and Volkan Ediger
Additional contact information
Gürkan Kumbaroglu: Department of Industrial Engineering, Bogaziçi University, 34342 Bebek, Istanbul, Turkey

No 04-30, CEPE Working paper series from CEPE Center for Energy Policy and Economics, ETH Zurich

Abstract: This paper studies energy conversion technology adoption in the electricity supply sector from the perspective of irreversible investments under uncertainty, and with a particular interest in environmental sustainability. We develop a dynamic technology adoption model that is firmly rooted in economic theory and that takes important determinants of optimal investment in available technologies (e.g. life-cycle capital and operation cost) explicitly into account. Uncertainty is introduced for the demand for peak-load capacity, unit generation costs, and for the average electricity price. We test the model empirically by applying it to data for the Turkish power supply industry. The model-guided optimal investment results based on net present value considerations exhibit significant deviations from the actual investment outcome. We find that the increased adoption of natural-gas-fired power generation technologies in Turkey in recent years, while contributing to environmental sustainability, has had doubtful merits from an investor’s perspective.

Keywords: Technology adoption; Irreversible investment under uncertainty; Real options; Electricity supply; Dynamic optimization (search for similar items in EconPapers)
Pages: 32 pages
Date: 2004-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.cepe.ethz.ch/publications/workingPapers/CEPE_WP30.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not found UA (http://www.cepe.ethz.ch/publications/workingPapers/CEPE_WP30.pdf [301 Moved Permanently]--> https://www.cepe.ethz.ch/publications/workingPapers/CEPE_WP30.pdf [301 Moved Permanently]--> https://cepe.ethz.ch/publications/workingPapers/CEPE_WP30.pdf)

Related works:
Journal Article: Modeling technology adoption as an irreversible investment under uncertainty: the case of the Turkish electricity supply industry (2005)
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:cee:wpcepe:04-30

Access Statistics for this paper

More papers in CEPE Working paper series from CEPE Center for Energy Policy and Economics, ETH Zurich Contact information at EDIRC.
Bibliographic data for series maintained by Carlos Ordas ().