IDEAS home Printed from https://ideas.repec.org/a/eee/renene/v51y2013icp364-372.html
   My bibliography  Save this article

Optimization of a hybrid diesel-wind generation plant with operational options

Author

Listed:
  • Hu, Yu
  • Solana, Pablo

Abstract

Hybrid diesel-wind power generation systems have a great potential in the application of providing energy supply for remote communities and facilities. Compared to the traditional diesel system, hybrid power plants can offer many advantages such as additional capacity, being more environmentally friendly, potential reduction of cost, etc. One of the problems for the hybrid system is the uncertain profit due to the uncertain nature of the wind. In this paper a general model is presented based on real option theory for valuating a hybrid diesel-wind generation plant. A dynamic programming method is used to generate the optimum operational option by maximizing the net cash flow of the plant. Results show that operational options can provide additional value to the hybrid power system when this operational flexibility is correctly utilized. The optimal scale of wind turbines generators (WTGs) can be calculated as a consequence of the limitation of demand and local wind power density. This paper also provides a framework to find the optimal operating decision at each time step based on the real option model.

Suggested Citation

  • Hu, Yu & Solana, Pablo, 2013. "Optimization of a hybrid diesel-wind generation plant with operational options," Renewable Energy, Elsevier, vol. 51(C), pages 364-372.
    • Handle: RePEc:eee:renene:v:51:y:2013:i:c:p:364-372
    DOI: 10.1016/j.renene.2012.10.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0960148112006313
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.renene.2012.10.005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Martínez-Ceseña, E.A. & Mutale, J., 2011. "Application of an advanced real options approach for renewable energy generation projects planning," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(4), pages 2087-2094, May.
    2. 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.
    3. Garcia, Raquel S. & Weisser, Daniel, 2006. "A wind–diesel system with hydrogen storage: Joint optimisation of design and dispatch," Renewable Energy, Elsevier, vol. 31(14), pages 2296-2320.
    4. Bernal-Agustín, José L. & Dufo-López, Rodolfo & Rivas-Ascaso, David M., 2006. "Design of isolated hybrid systems minimizing costs and pollutant emissions," Renewable Energy, Elsevier, vol. 31(14), pages 2227-2244.
    5. Weisser, Daniel & Garcia, Raquel S., 2005. "Instantaneous wind energy penetration in isolated electricity grids: concepts and review," Renewable Energy, Elsevier, vol. 30(8), pages 1299-1308.
    6. Siddiqui, Afzal S. & Marnay, Chris & Wiser, Ryan H., 2007. "Real options valuation of US federal renewable energy research, development, demonstration, and deployment," Energy Policy, Elsevier, vol. 35(1), pages 265-279, January.
    7. Lander, Diane M. & Pinches, George E., 1998. "Challenges to the Practical Implementation of Modeling and Valuing Real Options," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(3, Part 2), pages 537-567.
    8. Ibrahim, H. & Ilinca, A. & Perron, J., 2008. "Energy storage systems--Characteristics and comparisons," Renewable and Sustainable Energy Reviews, Elsevier, vol. 12(5), pages 1221-1250, June.
    9. Elhadidy, M.A. & Shaahid, S.M., 2000. "Parametric study of hybrid (wind + solar + diesel) power generating systems," Renewable Energy, Elsevier, vol. 21(2), pages 129-139.
    10. Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-157, April.
    11. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    12. Chorn, L.G. & Shokhor, S., 2006. "Real options for risk management in petroleum development investments," Energy Economics, Elsevier, vol. 28(4), pages 489-505, July.
    13. Kaldellis, J.K. & Kavadias, K.A., 2007. "Cost-benefit analysis of remote hybrid wind-diesel power stations: Case study Aegean Sea islands," Energy Policy, Elsevier, vol. 35(3), pages 1525-1538, March.
    14. Lee, Shun-Chung & Shih, Li-Hsing, 2010. "Renewable energy policy evaluation using real option model -- The case of Taiwan," Energy Economics, Elsevier, vol. 32(Supplemen), pages 67-78, September.
    15. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
    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


    Cited by:

    1. Theo, Wai Lip & Lim, Jeng Shiun & Ho, Wai Shin & Hashim, Haslenda & Lee, Chew Tin, 2017. "Review of distributed generation (DG) system planning and optimisation techniques: Comparison of numerical and mathematical modelling methods," Renewable and Sustainable Energy Reviews, Elsevier, vol. 67(C), pages 531-573.
    2. Shane Phelan & Paula Meehan & Stephen Daniels, 2013. "Using Atmospheric Pressure Tendency to Optimise Battery Charging in Off-Grid Hybrid Wind-Diesel Systems for Telecoms," Energies, MDPI, vol. 6(6), pages 1-20, June.
    3. Kusakana, Kanzumba, 2015. "Operation cost minimization of photovoltaic–diesel–battery hybrid systems," Energy, Elsevier, vol. 85(C), pages 645-653.
    4. Vu, Ba Hau & Chung, Il-Yop, 2022. "Optimal generation scheduling and operating reserve management for PV generation using RNN-based forecasting models for stand-alone microgrids," Renewable Energy, Elsevier, vol. 195(C), pages 1137-1154.
    5. Rahimi, Ehsan & Rabiee, Abdorreza & Aghaei, Jamshid & Muttaqi, Kashem M. & Esmaeel Nezhad, Ali, 2013. "On the management of wind power intermittency," Renewable and Sustainable Energy Reviews, Elsevier, vol. 28(C), pages 643-653.
    6. Kusakana, Kanzumba, 2014. "Techno-economic analysis of off-grid hydrokinetic-based hybrid energy systems for onshore/remote area in South Africa," Energy, Elsevier, vol. 68(C), pages 947-957.
    7. Mohamed, Mohamed A. & Eltamaly, Ali M. & Alolah, Abdulrahman I., 2017. "Swarm intelligence-based optimization of grid-dependent hybrid renewable energy systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 77(C), pages 515-524.
    8. Kusakana, Kanzumba & Vermaak, Herman Jacobus, 2014. "Hybrid diesel generator/renewable energy system performance modeling," Renewable Energy, Elsevier, vol. 67(C), pages 97-102.
    9. Cuervo, Felipe Isaza & Botero, Sergio Botero, 2016. "Wind power reliability valuation in a Hydro-Dominated power market: The Colombian case," Renewable and Sustainable Energy Reviews, Elsevier, vol. 57(C), pages 1359-1372.
    10. González, Arnau & Riba, Jordi-Roger & Rius, Antoni & Puig, Rita, 2015. "Optimal sizing of a hybrid grid-connected photovoltaic and wind power system," Applied Energy, Elsevier, vol. 154(C), pages 752-762.
    11. González, Arnau & Riba, Jordi-Roger & Rius, Antoni, 2016. "Combined heat and power design based on environmental and cost criteria," Energy, Elsevier, vol. 116(P1), pages 922-932.
    12. Abdelkader, Abbassi & Rabeh, Abbassi & Mohamed Ali, Dami & Mohamed, Jemli, 2018. "Multi-objective genetic algorithm based sizing optimization of a stand-alone wind/PV power supply system with enhanced battery/supercapacitor hybrid energy storage," Energy, Elsevier, vol. 163(C), pages 351-363.
    13. Nunes, Luis Eduardo & Lima, Marcus Vinicius Andrade de & Davison, Matthew & Leite, André Luis da Silva, 2021. "Switch and defer option in renewable energy projects: Evidences from Brazil," Energy, Elsevier, vol. 231(C).
    14. Elena Sosnina & Andrey Dar’enkov & Andrey Kurkin & Ivan Lipuzhin & Andrey Mamonov, 2022. "Review of Efficiency Improvement Technologies of Wind Diesel Hybrid Systems for Decreasing Fuel Consumption," Energies, MDPI, vol. 16(1), pages 1-38, December.
    15. Vermaak, Herman Jacobus & Kusakana, Kanzumba, 2014. "Design of a photovoltaic–wind charging station for small electric Tuk–tuk in D.R.Congo," Renewable Energy, Elsevier, vol. 67(C), pages 40-45.
    16. Rediske, G. & Burin, H.P. & Rigo, P.D. & Rosa, C.B. & Michels, L. & Siluk, J.C.M., 2021. "Wind power plant site selection: A systematic review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 148(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhang, Mingming & Zhou, Dequn & Zhou, Peng, 2014. "A real option model for renewable energy policy evaluation with application to solar PV power generation in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 40(C), pages 944-955.
    2. Schachter, J.A. & Mancarella, P., 2016. "A critical review of Real Options thinking for valuing investment flexibility in Smart Grids and low carbon energy systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 56(C), pages 261-271.
    3. 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.
    4. 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.
    5. Balibrea-Iniesta, José & Rodríguez-Monroy, Carlos & Núñez-Guerrero, Yilsy María, 2021. "Economic analysis of the German regulation for electrical generation projects from biogas applying the theory of real options," Energy, Elsevier, vol. 231(C).
    6. Lin, Boqiang & Wesseh, Presley K., 2013. "Valuing Chinese feed-in tariffs program for solar power generation: A real options analysis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 28(C), pages 474-482.
    7. Sisodia, Gyanendra Singh & Soares, Isabel & Ferreira, Paula, 2016. "Modeling business risk: The effect of regulatory revision on renewable energy investment - The Iberian case," Renewable Energy, Elsevier, vol. 95(C), pages 303-313.
    8. Martín-Barrera, Gonzalo & Zamora-Ramírez, Constancio & González-González, José M., 2016. "Application of real options valuation for analysing the impact of public R&D financing on renewable energy projects: A company′s perspective," Renewable and Sustainable Energy Reviews, Elsevier, vol. 63(C), pages 292-301.
    9. Nunes, Luis Eduardo & Lima, Marcus Vinicius Andrade de & Davison, Matthew & Leite, André Luis da Silva, 2021. "Switch and defer option in renewable energy projects: Evidences from Brazil," Energy, Elsevier, vol. 231(C).
    10. José Balibrea-Iniesta, 2020. "Economic Analysis of Renewable Energy Regulation in France: A Case Study for Photovoltaic Plants Based on Real Options," Energies, MDPI, vol. 13(11), pages 1-19, June.
    11. Assereto, Martina & Byrne, Julie, 2021. "No real option for solar in Ireland: A real option valuation of utility scale solar investment in Ireland," Renewable and Sustainable Energy Reviews, Elsevier, vol. 143(C).
    12. Jeon, Chanwoong & Lee, Jeongjin & Shin, Juneseuk, 2015. "Optimal subsidy estimation method using system dynamics and the real option model: Photovoltaic technology case," Applied Energy, Elsevier, vol. 142(C), pages 33-43.
    13. Santos, Lúcia & Soares, Isabel & Mendes, Carla & Ferreira, Paula, 2014. "Real Options versus Traditional Methods to assess Renewable Energy Projects," Renewable Energy, Elsevier, vol. 68(C), pages 588-594.
    14. Jos Balibrea-Iniesta & Antonio S nchez-Soli o & Antonio Lara-Galera, 2015. "Application of Real Options Theory to the Assessment of Public Incentives for Onshore Wind Energy Development in Spain," International Journal of Energy Economics and Policy, Econjournals, vol. 5(3), pages 791-800.
    15. Loncar, Dragan & Milovanovic, Ivan & Rakic, Biljana & Radjenovic, Tamara, 2017. "Compound real options valuation of renewable energy projects: The case of a wind farm in Serbia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 75(C), pages 354-367.
    16. Felipe Isaza Cuervo & Sergio Botero Boterob, 2014. "Aplicación de las opciones reales en la toma de decisiones en los mercados de electricidad," Estudios Gerenciales, Universidad Icesi, November.
    17. Savolainen, Jyrki, 2016. "Real options in metal mining project valuation: Review of literature," Resources Policy, Elsevier, vol. 50(C), pages 49-65.
    18. Lee, Shun-Chung, 2011. "Using real option analysis for highly uncertain technology investments: The case of wind energy technology," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(9), pages 4443-4450.
    19. Carmen Schiel & Simon Glöser-Chahoud & Frank Schultmann, 2019. "A real option application for emission control measures," Journal of Business Economics, Springer, vol. 89(3), pages 291-325, April.
    20. Barbara Glensk & Reinhard Madlener, 2019. "Energiewende @ Risk: On the Continuation of Renewable Power Generation at the End of Public Policy Support," Energies, MDPI, vol. 12(19), pages 1-25, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:renene:v:51:y:2013:i:c:p:364-372. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/renewable-energy .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.