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Modeling technology adoption as an irreversible investment under uncertainty: the case of the Turkish electricity supply industry

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  • Madlener, Reinhard
  • Kumbaroglu, Gurkan
  • Ediger, Volkan S.

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.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 27 (2005)
Issue (Month): 1 (January)
Pages: 139-163

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Handle: RePEc:eee:eneeco:v:27:y:2005:i:1:p:139-163

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Web page: http://www.elsevier.com/locate/eneco

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References

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Citations

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Cited by:
  1. ToksarI, M. Duran, 2009. "Estimating the net electricity energy generation and demand using the ant colony optimization approach: Case of Turkey," Energy Policy, Elsevier, vol. 37(3), pages 1181-1187, March.
  2. Madlener, Reinhard & Koller, Martin, 2007. "Economic and CO2 mitigation impacts of promoting biomass heating systems: An input-output study for Vorarlberg, Austria," Energy Policy, Elsevier, vol. 35(12), pages 6021-6035, December.
  3. Huang, Yun-Hsun & Wu, Jung-Hua, 2008. "A portfolio risk analysis on electricity supply planning," Energy Policy, Elsevier, vol. 36(2), pages 627-641, February.
  4. Reinhard Madlener & Carlos Henggeler Antunes & Luis C. Dias, 2006. "Multi-Criteria versus Data Envelopment Analysis for Assessing the Performance of Biogas Plants," CEPE Working paper series 06-49, CEPE Center for Energy Policy and Economics, ETH Zurich.
  5. Rentizelas, Athanasios & Georgakellos, Dimitrios, 2014. "Incorporating life cycle external cost in optimization of the electricity generation mix," Energy Policy, Elsevier, vol. 65(C), pages 134-149.
  6. Fernandes, Bartolomeu & Cunha, Jorge & Ferreira, Paula, 2011. "The use of real options approach in energy sector investments," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(9), pages 4491-4497.
  7. Tolis, Athanasios I. & Rentizelas, Athanasios A., 2011. "An impact assessment of electricity and emission allowances pricing in optimised expansion planning of power sector portfolios," Applied Energy, Elsevier, vol. 88(11), pages 3791-3806.
  8. Reinhard Madlener & Stefan Vögtli, 2006. "Diffusion of bioenergy in urban areas: socio-economic analysis of the planned Swiss wood-fired cogeneration plant in Basel," CEPE Working paper series 06-53, CEPE Center for Energy Policy and Economics, ETH Zurich.
  9. Gürkan Kumbaroglu & Reinhard Madlener & Mustafa Demirel, 2004. "A Real Options Evaluation Model for the Diffusion Prospects of New Renewable Power Generation Technologies," CEPE Working paper series 04-35, CEPE Center for Energy Policy and Economics, ETH Zurich.
  10. Hervé-Mignucci, Morgan, 2011. "Rôle du signal prix du carbone sur les décisions d'investissement des entreprises," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/8200 edited by Keppler, Jan Horst.
  11. Zon, Adriaan van & Fuss, Sabine, 2006. "Irreversible Investment under Uncertainty in Electricity Generation: A Clay-Clay-Vintage Portfolio Approach with an Application to Climate Change Policy in the UK," MERIT Working Papers 035, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  12. Silvia Banfi & Massimo Filippini & Andrea Horeh�jov�, 2012. "Using a choice experiment to estimate the benefits of a reduction of externalities in urban areas with special focus on electrosmog," Applied Economics, Taylor & Francis Journals, vol. 44(3), pages 387-397, January.
  13. Silvia Banfi & Massimo Filippini & Andrea Horehájová, 2007. "Hedonic Price Functions for Zurich and Lugano with Special Focus on Electrosmog," CEPE Working paper series 07-57, CEPE Center for Energy Policy and Economics, ETH Zurich.
  14. Lise, Wietze & Kruseman, Gideon, 2008. "Long-term price and environmental effects in a liberalised electricity market," Energy Economics, Elsevier, vol. 30(2), pages 230-248, March.
  15. Rentizelas, Athanasios A. & Tolis, Athanasios I. & Tatsiopoulos, Ilias P., 2012. "Investment planning in electricity production under CO2 price uncertainty," International Journal of Production Economics, Elsevier, vol. 140(2), pages 622-629.
  16. Fuss, Sabine & Johansson, Daniel J.A. & Szolgayova, Jana & Obersteiner, Michael, 2009. "Impact of climate policy uncertainty on the adoption of electricity generating technologies," Energy Policy, Elsevier, vol. 37(2), pages 733-743, February.
  17. Eberhard Jochem, 2005. "An Agenda for Energy and Material Efficiency Policy – An Element of Technology Policy for a More Sustainable Use of Natural Resources," CEPE Working paper series 05-40, CEPE Center for Energy Policy and Economics, ETH Zurich.
  18. Bergek, Anna & Mignon, Ingrid & Sundberg, Gunnel, 2013. "Who invests in renewable electricity production? Empirical evidence and suggestions for further research," Energy Policy, Elsevier, vol. 56(C), pages 568-581.
  19. Tolis, Athanasios I. & Rentizelas, Athanasios A. & Tatsiopoulos, Ilias P., 2010. "Time-dependent opportunities in energy business: A comparative study of locally available renewable and conventional fuels," Renewable and Sustainable Energy Reviews, Elsevier, vol. 14(1), pages 384-393, January.

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