Economic Feasibility of Semi-Underground Pumped Storage Hydro Power Plants in Open Pit Mines

Michael Wessel, Reinhard Madlener and Christoph Hilgers
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Michael Wessel: RWTH Aachen University
Christoph Hilgers: Karlsruhe Institute of Technology (KIT)

No 22/2015, FCN Working Papers from E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)

Abstract: This work aims at the economic evaluation of a semi-underground pumped hydro storage power plant erected in an abandoned open pit mine. For the exploratory model-based analysis, we develop and apply both a simple deterministic and a stochastic net present value (NPV) approach, the latter of which uses Monte Carlo simulation to account for revenue uncertainty from electricity price fluctuations. The analytical framework developed is applied to two promising sites in the Rheinland region in Germany, Hambach and Inden, making reasonable parameter value assumptions and considering and ignoring the lengthy duration of lower reservoir flooding. The investor's value-at-risk is computed for alternative performance indicators (the NPV, net cash recovery, profit-to-investment ratio, and specific production costs) to compare the different outcomes in terms of the project's financial risk distribution. Calculations show that a semi-underground pumped hydro storage power plant in an abandoned open pit mine can be constructed at reasonably low investment costs and operated at low specific production costs. However, because the investment has to be made long before the pit lake is (naturally) flooded - a process that for realistic flow rates may take up to 20 years - the project is highly uneconomical and would require substantial subsidies, as compared to a situation where flooding happens immediately.

Keywords: NPV evaluation; pumped hydro storage; Monte Carlo simulation; Value at Risk (search for similar items in EconPapers)
JEL-codes: D25 P48 Q25 Q42 Q57 R32 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2015-12
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Economic Feasibility of Semi-Underground Pumped Storage Hydropower Plants in Open-Pit Mines (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:fcnwpa:2015_022

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