In this paper, we investigate capacity expansion, the technological development of wind turbine generators, and the merits of onshore wind repowering in Germany. We analyze the regulatory framework that is presently in place and its impact on the profitability of the onshore wind parks commissioned under previous regulatory frameworks. The optimal timing of repowering under today’s market premium model is scrutinized. Repowering in a market without subsidies for onshore wind energy is also evaluated. In the two cases (regimes) investigated, the electricity price is modeled stochastically as a geometric Brownian motion process. More specifically, using a real options modeling framework for investments under a free market regime, we analyze how the regime change affects the optimal timing of repowering. Further, we check the results for their robustness via a sensitivity analysis for both analyzed regimes. We find that repowering well before the plant’s expected end of life (‘early repowering’) can be economically preferable under the German Renewable Energy Sources Act 2017 remuneration scheme and that, due to the electricity spot market price development, repowering under the market premium regime is more profitable than it is under the free market regime. The economic viability is strongly influenced by the duration of the initial tariff granted to the old installation, the expected digression factor of the future reference tariff, and the increase in electricity generation achieved through repowering.
This paper aims to analyze what happens with renewable energy power plants, such as onshore wind, photovoltaics and biomass, when the public policy support based on the Renewable Energy Law expires. With its expiration, the first renewable energy (and especially onshore wind) power plants will have to be scrutinized as to whether they can economically continue operation, whether they have to be repowered, or whether they need to be decommissioned. The relative merits of these three alternatives are evaluated by applying real options analysis. In contrast to traditional project evaluation techniques, the real options approach takes advantage of the use of uncertain parameters included in the model, such as the development of the electricity price or electricity output. The results obtained suggest that parameters such as the level of future operation and maintenance costs, the expected development of the electricity price at the spot market, and the interrelations between these, as well as the development of the electricity output from renewables can significantly affect the profitability of these power plants and thus impact the decision about their further optimal operation.
In this paper we develop a decision tool that is based on real options analysis and that supports flexibility investment decisions concerning conventional lignite-fired power plants. The value of the power plant is influenced both by technical and economic variables, the latter including subsidies. The four-step approach proposed allows to determine the optimal operation strategy in light of electricity and fuel price developments, to simulate the project value, to determine the binomial lattice of the expected project value, and finally to infer the optimal management decision (based on the option to choose). For the case of an existing lignite-fired power plant in Germany, we find that the plant can be operated profitably without any modifications until the end of its technical lifetime only if current government subsidies persist. In the absence of subsidies, however, it is preferable to stop operation immediately. The analysis also shows that profitable reinvestments in a number of flexibility retrofit measures are possible, the ranking of which depends, however, on the costs related to the retrofitting measures and their implementation time.
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