Advanced Search
MyIDEAS: Login

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

Contents:

Author Info

  • Reinhard Madlener

    () (Center for Energy Policy and Economics CEPE, Department of Management, Technology and Economics, ETH Zurich, Switzerland)

  • Gürkan Kumbaroglu

    () (Department of Industrial Engineering, Bogaziçi University, 34342 Bebek, Istanbul, Turkey)

  • Volkan S. Ediger

    (Cumhurbaskanligi, Çankaya, TR-06689 Ankara, Turkey)

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.

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.cepe.ethz.ch/publications/workingPapers/CEPE_WP30.pdf
Download Restriction: no

Bibliographic Info

Paper provided by CEPE Center for Energy Policy and Economics, ETH Zurich in its series CEPE Working paper series with number 04-30.

as in new window
Length: 32 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:cee:wpcepe:04-30

Contact details of provider:
Postal: ETH-CEPE, Zürichbergstrasse 18, 8032 Zürich
Phone: +41-1-632 06 50
Fax: +41-1-632 16 22
Email:
Web page: http://www.cepe.ethz.ch
More information through EDIRC

Related research

Keywords: Technology adoption; Irreversible investment under uncertainty; Real options; Electricity supply; Dynamic optimization;

Other versions of this item:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Moreira, Ajax & Rocha, Katia & David, Pedro, 2004. "Thermopower generation investment in Brazil--economic conditions," Energy Policy, Elsevier, vol. 32(1), pages 91-100, January.
  2. Nancy L. Rose & Paul L. Joskow, 1990. "The Diffusion of New Technologies: Evidence from the Electric Utility Industry," RAND Journal of Economics, The RAND Corporation, vol. 21(3), pages 354-373, Autumn.
  3. Keppo, Jussi & Lu, Hao, 2003. "Real options and a large producer: the case of electricity markets," Energy Economics, Elsevier, vol. 25(5), pages 459-472, September.
  4. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots," NBER Technical Working Papers 0100, National Bureau of Economic Research, Inc.
  5. Alvarez, Luis H. R. & Keppo, Jussi, 2002. "The impact of delivery lags on irreversible investment under uncertainty," European Journal of Operational Research, Elsevier, vol. 136(1), pages 173-180, January.
  6. Pindyck, Robert S., 1993. "Investments of uncertain cost," Journal of Financial Economics, Elsevier, vol. 34(1), pages 53-76, August.
  7. Choi, J.P., 1992. "Irreversible Choice of Uncertain Technologies with Network Externalities," Discussion Papers 1992_27, Columbia University, Department of Economics.
  8. Majd, Saman & Pindyck, Robert S., 1987. "Time to build, option value, and investment decisions," Journal of Financial Economics, Elsevier, vol. 18(1), pages 7-27, March.
  9. Bar-Ilan, Avner & Strange, William C., 1999. "The Timing and Intensity of Investment," Journal of Macroeconomics, Elsevier, vol. 21(1), pages 57-77, January.
  10. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-18, Nov.-Dec..
  11. Balcer, Yves & Lippman, Steven A., 1984. "Technological expectations and adoption of improved technology," Journal of Economic Theory, Elsevier, vol. 34(2), pages 292-318, December.
  12. Bar-Ilan, Avner & Strange, William C, 1996. "Investment Lags," American Economic Review, American Economic Association, vol. 86(3), pages 610-22, June.
  13. Kobila, T. Ø., 1993. "An application of reflected diffusions to the problem of choosing between hydro and thermal power generation," Stochastic Processes and their Applications, Elsevier, vol. 44(1), pages 117-139, January.
  14. Kumbaroglu, Gurkan Selcuk, 2003. "Environmental taxation and economic effects: a computable general equilibrium analysis for Turkey," Journal of Policy Modeling, Elsevier, vol. 25(8), pages 795-810, November.
  15. Arikan, Yildiz & Kumbaroglu, Gurkan, 2001. "Endogenising emission taxes : A general equilibrium type optimisation model applied for Turkey," Energy Policy, Elsevier, vol. 29(12), pages 1045-1056, October.
  16. Sarkar, Jayati, 1998. " Technological Diffusion: Alternative Theories and Historical Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 12(2), pages 131-76, April.
  17. Brown, Gardner, Jr & Johnson, M Bruce, 1969. "Public Utility Pricing and Output under Risk," American Economic Review, American Economic Association, vol. 59(1), pages 119-28, March.
  18. Nissan Levin & Asher Tishler & Jacob Zahavi, 1985. "Capacity Expansion of Power Generation Systems with Uncertainty in the Prices of Primary Energy Resources," Management Science, INFORMS, vol. 31(2), pages 175-187, February.
  19. Dyner, Isaac & Larsen, Erik R., 2001. "From planning to strategy in the electricity industry," Energy Policy, Elsevier, vol. 29(13), pages 1145-1154, November.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

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. 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.
  3. Kumbaroglu, Gürkan & Madlener, Reinhard & Demirel, Mustafa, 2008. "A real options evaluation model for the diffusion prospects of new renewable power generation technologies," Energy Economics, Elsevier, vol. 30(4), pages 1882-1908, July.
  4. 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.
  5. Reinhard Madlener & Martin Koller, 2006. "Economic and CO2 mitigation impacts of promoting biomass heating systems: an input-output study for Vorarlberg, Austria," CEPE Working paper series 06-50, CEPE Center for Energy Policy and Economics, ETH Zurich.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. 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 and Francis Journals, vol. 44(3), pages 387-397, January.
  11. 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.
  12. Hervé-Mignucci, Morgan, 2011. "Rôle du signal prix du carbone sur les décisions d'investissement des entreprises," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/8200, Université Paris-Dauphine.
  13. 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.

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:cee:wpcepe:04-30

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

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.