IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

A real options evaluation model for the diffusion prospects of new renewable power generation technologies

  • Kumbaroglu, Gürkan
  • Madlener, Reinhard
  • Demirel, Mustafa

This study presents a policy planning model that integrates learning curve information on renewable power generation technologies into a dynamic programming formulation featuring real options analysis. The model recursively evaluates a set of investment alternatives on a year-by-year basis, thereby taking into account that the flexibility to delay an irreversible investment expenditure can profoundly affect the diffusion prospects of renewable power generation technologies. Price uncertainty is introduced through stochastic processes for the average wholesale price of electricity and for input fuel prices. Demand for electricity is assumed to be increasingly price-sensitive, as the electricity market deregulation proceeds, reflecting new options of consumers to react to electricity price changes (such as time-of-use pricing, unbundled electricity services, and choice of supplier). The empirical analysis is based on data for the Turkish electricity supply industry. Apart from general implications for policy-making, it provides some interesting insights about the impact of uncertainty and technical change on the diffusion of various emerging renewable energy technologies.

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.sciencedirect.com/science/article/B6V7G-4MFKD83-1/1/5945218e8d006f3e09d338ac32c6ac15
Download Restriction: Full text for ScienceDirect subscribers only

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.

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 30 (2008)
Issue (Month): 4 (July)
Pages: 1882-1908

as
in new window

Handle: RePEc:eee:eneeco:v:30:y:2008:i:4:p:1882-1908
Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

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. Nasakkala, Erkka & Fleten, Stein-Erik, 2005. "Flexibility and technology choice in gas fired power plant investments," Review of Financial Economics, Elsevier, vol. 14(3-4), pages 371-393.
  2. Martin Jakob & Reinhard Madlener, 2003. "Exploring Experience Curves for the Building Envelope: An Investigation for Switzerland for 1970–2020," CEPE Working paper series 03-22, CEPE Center for Energy Policy and Economics, ETH Zurich.
  3. Reinhard Madlener & Carmenza Robledo & Bart Muys & Bo Hektor & Julije Domac, 2003. "A Sustainability Framework for Enhancing the Long-Term Success of LULUCF Projects," CEPE Working paper series 03-29, CEPE Center for Energy Policy and Economics, ETH Zurich.
  4. Mehdi Farsi & Massimo Filippini & William Greene, 2004. "Efficiency Measurement in Network Industries: Application to the Swiss Railway Companies," CEPE Working paper series 04-32, CEPE Center for Energy Policy and Economics, ETH Zurich.
  5. Mehdi Farsi & Massimo Filippini, 2004. "Regulation and Measuring Cost-Efficiency with Panel Data Models: Application to Electricity Distribution Utilities," Review of Industrial Organization, Springer, vol. 25(1), pages 1-19, 08.
  6. Silvia Banfi & Massimo Filippini & Lester C. Hunt, 2003. "Fuel tourism in border regions," CEPE Working paper series 03-23, CEPE Center for Energy Policy and Economics, ETH Zurich.
  7. Venetsanos, Konstantinos & Angelopoulou, Penelope & Tsoutsos, Theocharis, 2002. "Renewable energy sources project appraisal under uncertainty: the case of wind energy exploitation within a changing energy market environment," Energy Policy, Elsevier, vol. 30(4), pages 293-307, March.
  8. David Goldblatt, 1999. "Northern Consumption: A Critical Review of Issues, Driving Forces, Disciplinary Approaches and Critiques," CEPE Working paper series 99-03, CEPE Center for Energy Policy and Economics, ETH Zurich.
  9. Kaygusuz, Kamil & Kaygusuz, Abdullah, 2004. "Geothermal energy in Turkey: the sustainable future," Renewable and Sustainable Energy Reviews, Elsevier, vol. 8(6), pages 545-563, December.
  10. Massimo Filippini & Silvia Banfi & Cornelia Luchsinger, 2002. "Deregulation of the Swiss Electricity Industry: Implication for the Hydropower Sector," CEPE Working paper series 02-13, CEPE Center for Energy Policy and Economics, ETH Zurich.
  11. Bower, John & Bunn, Derek W. & Wattendrup, Claus, 2001. "A model-based analysis of strategic consolidation in the German electricity industry," Energy Policy, Elsevier, vol. 29(12), pages 987-1005, October.
  12. 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.
  13. Reinhard Madlener, 2003. "Modelling the Adoption and Diffusion of Decentralised Energy Conversion Technologies with Hazard Rate Models," CEPE Working paper series 03-28, CEPE Center for Energy Policy and Economics, ETH Zurich.
  14. Junginger, M. & Faaij, A. & Turkenburg, W. C., 2005. "Global experience curves for wind farms," Energy Policy, Elsevier, vol. 33(2), pages 133-150, January.
  15. Reinhard Madlener & Gürkan Kumbaroglu & Volkan S. Ediger, 2004. "Modeling Technology Adoption as an Irreversible Investment Under Uncertainty: The Case of the Turkish Electricity Supply Industry," CEPE Working paper series 04-30, CEPE Center for Energy Policy and Economics, ETH Zurich.
  16. Fama, Eugene F, 1996. "Discounting under Uncertainty," The Journal of Business, University of Chicago Press, vol. 69(4), pages 415-28, October.
  17. Gürkan Kumbaroglu & Reinhard Madlener, 2001. "A Description of the Hybrid Bottom-Up CGE Model SCREEN with an Application to Swiss Climate Policy Analysis," CEPE Working paper series 01-10, CEPE Center for Energy Policy and Economics, ETH Zurich.
  18. Vehvilainen, Iivo & Keppo, Jussi, 2003. "Managing electricity market price risk," European Journal of Operational Research, Elsevier, vol. 145(1), pages 136-147, February.
  19. Andrea Scheller, . "Researchers' Use of Indicators. Interim Report of The Indicator Project," CEPE Working paper series 99-01, CEPE Center for Energy Policy and Economics, ETH Zurich.
  20. Frayer, Julia & Uludere, Nazli Z., 2001. "What Is It Worth? Application of Real Options Theory to the Valuation of Generation Assets," The Electricity Journal, Elsevier, vol. 14(8), pages 40-51, October.
  21. Ibenholt, Karin, 2002. "Explaining learning curves for wind power," Energy Policy, Elsevier, vol. 30(13), pages 1181-1189, October.
  22. Shonali Pachauri, . "A First Step to Constructing Energy Consumption Indicators for India. Interim Report of The Indicator Project," CEPE Working paper series 99-02, CEPE Center for Energy Policy and Economics, ETH Zurich.
  23. 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.
  24. Mehdi Farsi & Massimo Filippini & Michael Kuenzle, 2004. "Cost Efficiency in Regional Bus Companies: An Application of Alternative Stochastic Frontier Models," CEPE Working paper series 04-33, CEPE Center for Energy Policy and Economics, ETH Zurich.
  25. Kamp, Linda M. & Smits, Ruud E. H. M. & Andriesse, Cornelis D., 2004. "Notions on learning applied to wind turbine development in the Netherlands and Denmark," Energy Policy, Elsevier, vol. 32(14), pages 1625-1637, September.
  26. 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.
  27. Barreto, Leonardo & Kypreos, Socrates, 2004. "Emissions trading and technology deployment in an energy-systems "bottom-up" model with technology learning," European Journal of Operational Research, Elsevier, vol. 158(1), pages 243-261, October.
  28. Gustavsson, Leif & Madlener, Reinhard, 2003. "CO2 mitigation costs of large-scale bioenergy technologies in competitive electricity markets," Energy, Elsevier, vol. 28(14), pages 1405-1425.
  29. Filippini, Massimo & Pachauri, Shonali, 2004. "Elasticities of electricity demand in urban Indian households," Energy Policy, Elsevier, vol. 32(3), pages 429-436, February.
  30. Silvia Banfi & Massimo Filippini & Cornelia Luchsinger, 2004. "Resource Rent Taxation – A New Perspective for the (Swiss) Hydropower Sector," CEPE Working paper series 04-34, CEPE Center for Energy Policy and Economics, ETH Zurich.
  31. Evrendilek, F & Ertekin, C, 2003. "Assessing the potential of renewable energy sources in Turkey," Renewable Energy, Elsevier, vol. 28(15), pages 2303-2315.
  32. Rosenzweig, Michael B. & Fraser, Hamish & Falk, Jonathan & Voll, Sarah P., 2003. "Market Power and Demand Responsiveness: Letting Customers Protect Themselves," The Electricity Journal, Elsevier, vol. 16(4), pages 11-23, May.
  33. Silvia Banfi & Massimo Filippini & Adrian Müller, 2003. "Rent of Hydropower Generation in Switzerland in a Liberalized Market," CEPE Working paper series 01-20, CEPE Center for Energy Policy and Economics, ETH Zurich.
  34. Kaygusuz, K. & Türker, M.F., 2002. "Biomass energy potential in Turkey," Renewable Energy, Elsevier, vol. 26(4), pages 661-678.
  35. Filippini, Massimo & Wild, Jorg, 2001. "Regional differences in electricity distribution costs and their consequences for yardstick regulation of access prices," Energy Economics, Elsevier, vol. 23(4), pages 477-488, July.
  36. Fraser, Hamish, 2001. "The Importance of an Active Demand Side in the Electricity Industry," The Electricity Journal, Elsevier, vol. 14(9), pages 52-73, November.
  37. Osman Yilmaz, A. & Uslu, Tuncay, 2007. "Energy policies of Turkey during the period 1923-2003," Energy Policy, Elsevier, vol. 35(1), pages 258-264, January.
  38. Woo, Chi-Keung & Lloyd, Debra & Tishler, Asher, 2003. "Electricity market reform failures: UK, Norway, Alberta and California," Energy Policy, Elsevier, vol. 31(11), pages 1103-1115, September.
  39. Neij, Lena, 1997. "Use of experience curves to analyse the prospects for diffusion and adoption of renewable energy technology," Energy Policy, Elsevier, vol. 25(13), pages 1099-1107, November.
  40. Argote, L. & Epple, D., 1990. "Learning Curves In Manufacturing," GSIA Working Papers 89-90-02, Carnegie Mellon University, Tepper School of Business.
  41. Altinay, Galip & Karagol, Erdal, 2005. "Electricity consumption and economic growth: Evidence from Turkey," Energy Economics, Elsevier, vol. 27(6), pages 849-856, November.
  42. 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.
  43. Olsina, Fernando & Garces, Francisco & Haubrich, H.-J., 2006. "Modeling long-term dynamics of electricity markets," Energy Policy, Elsevier, vol. 34(12), pages 1411-1433, August.
  44. Kentaka Aruga, 2003. "Differences in Characteristics ofReligious Groups in India: As Seen From Household Survey Data," CEPE Working paper series 03-26, CEPE Center for Energy Policy and Economics, ETH Zurich.
  45. Hepbasli, Arif & Ozgener, Leyla, 2004. "Development of geothermal energy utilization in Turkey: a review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 8(5), pages 433-460, October.
  46. Massimo Filippini & Jörg Wild & Michael Kuenzle, 2001. "Scale and cost efficiency in the Swiss electricity distribution industry: evidence from a frontier cost approach," CEPE Working paper series 01-08, CEPE Center for Energy Policy and Economics, ETH Zurich.
  47. Neij, L, 1999. "Cost dynamics of wind power," Energy, Elsevier, vol. 24(5), pages 375-389.
  48. Bernard Aebischer & Alois Huser, 2000. "Monatlicher Verbrauch von Heizöl extraleicht im Dienstleistungssektor," CEPE Working paper series 00-04, CEPE Center for Energy Policy and Economics, ETH Zurich.
  49. Kemal Ozturk, Harun & Yilanci, Ahmet & Atalay, Oner, 2007. "Past, present and future status of electricity in Turkey and the share of energy sources," Renewable and Sustainable Energy Reviews, Elsevier, vol. 11(2), pages 183-209, February.
  50. Massimo Filippini & Nevenka Hrovatin & Jelena Zoric, 2002. "Efficiency and Regulation of the Slovenian Electricity Distribution Companies," CEPE Working paper series 02-14, CEPE Center for Energy Policy and Economics, ETH Zurich.
  51. McDonald, Alan & Schrattenholzer, Leo, 2001. "Learning rates for energy technologies," Energy Policy, Elsevier, vol. 29(4), pages 255-261, March.
  52. Tugrul Ogulata, R., 2003. "Energy sector and wind energy potential in Turkey," Renewable and Sustainable Energy Reviews, Elsevier, vol. 7(6), pages 469-484, December.
  53. 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.
  54. Robert S. Pindyck, 1999. "The Long-Run Evolutions of Energy Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-27.
  55. Fama, Eugene F., 1977. "Risk-adjusted discount rates and capital budgeting under uncertainty," Journal of Financial Economics, Elsevier, vol. 5(1), pages 3-24, August.
  56. Dyner, Isaac & Larsen, Erik R., 2001. "From planning to strategy in the electricity industry," Energy Policy, Elsevier, vol. 29(13), pages 1145-1154, November.
  57. Ad Seebregts & Tom Kram & Gerrit Jan Schaeffer & Alexandra Bos, 2000. "Endogenous learning and technology clustering: analysis with MARKAL model of the Western European energy system," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 14(1/2/3/4), pages 289-319.
  58. Cornelia Luchsinger & Adrian Müller, 2003. "Incentive Compatible Extraction of Natural Resource Rent," CEPE Working paper series 03-21, CEPE Center for Energy Policy and Economics, ETH Zurich.
  59. Sabine Messner, 1997. "Endogenized technological learning in an energy systems model," Journal of Evolutionary Economics, Springer, vol. 7(3), pages 291-313.
  60. Kaslow, Thomas W. & Pindyck, Robert S., 1994. "Valuing flexibility in utility planning," The Electricity Journal, Elsevier, vol. 7(2), pages 60-65, March.
  61. Massimo Filippini & Silvia Banfi, 2002. "Impact of the new Swiss electricity law on the competitiveness of hydropower," CEPE Working paper series 02-12, CEPE Center for Energy Policy and Economics, ETH Zurich.
  62. Kobos, Peter H. & Erickson, Jon D. & Drennen, Thomas E., 2006. "Technological learning and renewable energy costs: implications for US renewable energy policy," Energy Policy, Elsevier, vol. 34(13), pages 1645-1658, September.
  63. Soytas, Ugur & Sari, Ramazan, 2003. "Energy consumption and GDP: causality relationship in G-7 countries and emerging markets," Energy Economics, Elsevier, vol. 25(1), pages 33-37, January.
Full references (including those not matched with items on IDEAS)

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

When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:30:y:2008:i:4:p:1882-1908. 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: (Zhang, Lei)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.