Advanced Search
MyIDEAS: Login

Combined Heat and Power in Commercial Buildings: Investment and Risk Analysis

Contents:

Author Info

  • Karl Magnus Maribu
  • Stein-Erik Fleten

Abstract

Combined heat and power (CHP) systems can generate electricity locally while they recover heat to satisfy heating loads in buildings, which means they provide efficient energy. On-site generators may reduce both the expected energy costs and cost risk exposure for developers. With volatile energy prices, a deterministic modeling framework will not yield a fair value of CHP systems because flexibility in the operational response to price changes is not taken into account. In this paper, we present a Monte Carlo simulation model that is used to find the CHP value under uncertain future wholesale electricity and natural gas prices. When considering investing in a CHP system on should consider both return and risk. Clearly, both investment return and risk depend on local energy tariffs and energy loads. We highlight an example where CHP is marginally profitable and the investment decision is not straightforward. Interestingly, CHP systems were found particularly attractive with volatile electricity prices because their ability to respond to high prices provides efficient hedges to energy cost risk. Therefore, developers should not be discouraged but rather embrace on-site generation in markets with volatile prices. From the analysis, it can also be concluded that sizing of CHP systems can be related to the energy tariff structure and cost risk preferences as well as to energy loads.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.iaee.org/en/publications/ejarticle.aspx?id=2262
Download Restriction: Access to full text is restricted to IAEE members and subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by International Association for Energy Economics in its journal The Energy Journal.

Volume (Year): Volume 29 (2008)
Issue (Month): Number 2 ()
Pages: 123-150

as in new window
Handle: RePEc:aen:journl:2008v29-02-a07

Contact details of provider:
Postal: 28790 Chagrin Blvd Ste 350, Cleveland, OH 44122, USA
Phone: 216-464-5365
Fax: 216-464-2737
Email:
Web page: http://www.iaee.org
More information through EDIRC

Order Information:
Web: http://www.iaee.org/en/publications/ejsearch.aspx

Related research

Keywords:

Find related papers by JEL classification:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:aen:journl:2008v29-02-a07. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Williams).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.