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Pumped-storage project: A short to long term investment analysis including climate change

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  • Gaudard, Ludovic

Abstract

New renewable energy needs flexibility, which can be provided by storage-hydropower. Climate change affects the potential of this technology in both a negative and a positive way, on one hand by altering runoff, and on the other hand by creating new investment opportunity. This paper provides an economic and financial analysis of a future project in a pumped-storage facility that may be initiated in the Swiss Alps following the glacier retreat. The area released may be considered for building a new reservoir. A complete and integrated model is developed based on the tools of analysis provided by econometrics, finance and operational research. The results show that under the present market conditions such an investment is not profitable. Unexpectedly, the sensitivity analysis shows that most of the time higher price volatility reduces annual revenue. Furthermore, the project׳s lifetime only has a marginal impact on the Net Present Value. The value of the concession, which is the right to use water, is also assessed on the basis of a real option analysis including a long-term horizon. Its present value is substantial even if the project is currently unprofitable. In the discussion, we go beyond the Swiss case study and highlight the implications for energy policy and market design.

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  • Gaudard, Ludovic, 2015. "Pumped-storage project: A short to long term investment analysis including climate change," Renewable and Sustainable Energy Reviews, Elsevier, vol. 49(C), pages 91-99.
    • Handle: RePEc:eee:rensus:v:49:y:2015:i:c:p:91-99
    DOI: 10.1016/j.rser.2015.04.052
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    2. Voisin, Nathalie & Dyreson, Ana & Fu, Tao & O'Connell, Matt & Turner, Sean W.D. & Zhou, Tian & Macknick, Jordan, 2020. "Impact of climate change on water availability and its propagation through the Western U.S. power grid," Applied Energy, Elsevier, vol. 276(C).
    3. Barry, Michael & Baur, Patrick & Gaudard, Ludovic & Giuliani, Gianluca & Hediger, Werner & Romerio, Franco & Schillinger, Moritz & Schumann, René & Voegeli, Gillaume & Weigt, Hannes, 2015. "The Future of Swiss Hydropower A Review on Drivers and Uncertainties," Working papers 2015/11, Faculty of Business and Economics - University of Basel.
    4. Gaudard, Ludovic & Madani, Kaveh, 2019. "Energy storage race: Has the monopoly of pumped-storage in Europe come to an end?," Energy Policy, Elsevier, vol. 126(C), pages 22-29.
    5. Berna Tektas Sivrikaya & Ferhan Cebi & Hasan Hüseyin Turan & Nihat Kasap & Dursun Delen, 0. "A fuzzy long-term investment planning model for a GenCo in a hybrid electricity market considering climate change impacts," Information Systems Frontiers, Springer, vol. 0, pages 1-17.
    6. Bhattacharjee, Subhadeep & Nayak, Pabitra Kumar, 2019. "PV-pumped energy storage option for convalescing performance of hydroelectric station under declining precipitation trend," Renewable Energy, Elsevier, vol. 135(C), pages 288-302.
    7. Perera, A.T.D. & Soga, Kenichi & Xu, Yujie & Nico, Peter S. & Hong, Tianzhen, 2023. "Enhancing flexibility for climate change using seasonal energy storage (aquifer thermal energy storage) in distributed energy systems," Applied Energy, Elsevier, vol. 340(C).
    8. Guittet, Mélanie & Capezzali, Massimiliano & Gaudard, Ludovic & Romerio, Franco & Vuille, François & Avellan, François, 2016. "Study of the drivers and asset management of pumped-storage power plants historical and geographical perspective," Energy, Elsevier, vol. 111(C), pages 560-579.
    9. Yi, Changsheng & Chen, Zhaoming & Chen, Hongchen, 2023. "Opportunity knocks but just once: Impact of infrastructure investment decision on climate adaptation to flood events," Omega, Elsevier, vol. 121(C).
    10. Ludovic Gaudard & Jeannette Gabbi & Andreas Bauder & Franco Romerio, 2016. "Long-term Uncertainty of Hydropower Revenue Due to Climate Change and Electricity Prices," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 30(4), pages 1325-1343, March.
    11. Gaudard, Ludovic & Avanzi, Francesco & De Michele, Carlo, 2018. "Seasonal aspects of the energy-water nexus: The case of a run-of-the-river hydropower plant," Applied Energy, Elsevier, vol. 210(C), pages 604-612.
    12. Kozlova, Mariia, 2017. "Real option valuation in renewable energy literature: Research focus, trends and design," Renewable and Sustainable Energy Reviews, Elsevier, vol. 80(C), pages 180-196.
    13. Ludovic Gaudard & Jeannette Gabbi & Andreas Bauder & Franco Romerio, 2016. "Long-term Uncertainty of Hydropower Revenue Due to Climate Change and Electricity Prices," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 30(4), pages 1325-1343, March.
    14. Liebensteiner, Mario & Haxhimusa, Adhurim & Naumann, Fabian, 2023. "Subsidized renewables’ adverse effect on energy storage and carbon pricing as a potential remedy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 171(C).

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