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New renewable electricity capacity under uncertainty: The potential in Norway

Author

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  • Fleten, Stein-Erik
  • Ringen, Geir

Abstract

Uncertainty affecting project values makes investors hesitate to build new capacity unless profitability is significant. When analysing the potential for new renewable power system capacity in a region, it is therefore necessary to properly capture both uncertainty effects and decision-making behaviour of investors. Important stochastic factors typically include wholesale electricity prices and certificate prices. We calculate trigger levels for the sum of these factors, and compare these with the current long-term contract prices to estimate the potential for new renewable electricity capacity. We take into account the cost and technical potential of small hydro and wind in Norway, the number of prenotifications, concession applications and grants, and the capacity targets of subsidising governmental bodies. With an electricity certificate policy target of 41 TWh per year of new renewables for Sweden and Norway combined until 2016, we estimate that 12 TWh wind power and 6.2 TWh hydropower will be built in Norway. Due to the option value of waiting, most of this capacity will come after 2010.

Suggested Citation

  • Fleten, Stein-Erik & Ringen, Geir, 2009. "New renewable electricity capacity under uncertainty: The potential in Norway," MPRA Paper 12857, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:12857
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    File URL: https://mpra.ub.uni-muenchen.de/12857/1/MPRA_paper_12857.pdf
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    Cited by:

    1. Fleten, Stein-Erik & Linnerud, Kristin & Molnár, Peter & Tandberg Nygaard, Maria, 2016. "Green electricity investment timing in practice: Real options or net present value?," Energy, Elsevier, vol. 116(P1), pages 498-506.
    2. repec:eee:energy:v:141:y:2017:i:c:p:1717-1727 is not listed on IDEAS
    3. Reuter, Wolf Heinrich & Fuss, Sabine & Szolgayová, Jana & Obersteiner, Michael, 2012. "Investment in wind power and pumped storage in a real options model," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(4), pages 2242-2248.

    More about this item

    Keywords

    Finance; Hydroelectric power generation; Power system planning; Stochastic processes; Uncertainty; Wind energy;

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

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