Investing in Power Generation
In light of considerable political and market risk emanating from energy market liberalization, global warming, and rapid technological change, adequate investment in power generation capacity is of paramount importance for ensuring the security of electr
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Reinhard Madlener1 Rik W. De Doncker2
Abstract In light of considerable political and market risk emanating from energy market liberalization, global warming, and rapid technological change, adequate investment in power generation capacity is of paramount importance for ensuring the security of electricity supply and a smooth transition to a more decentralized, energy-efficient and renewable energy system. Consequently, investors have to use more sophisticated approaches to determine optimal investment levels and technology choices than in regulated markets. In this chapter, we provide a discussion of relevant topics and issues in this context and some of the key literature. We also discuss the expected paradigm shift from centralized to more decentralized electricity generation, and the possible (re-)emergence of direct current grids, in light of the history of electrical engineering. Both phenomena, once manifested, would radically reshape the electricity system, with potentially severe economic consequences for existing real assets and new challenges for investment decision-makers, technical system operators, policy-makers, and regulatory bodies alike. Keywords: risk management, paradigm shift, distributed generation
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Prof. Dr. Reinhard Madlener is Full Professor of Energy Economics and Management and Director of the Institute for Future Energy Consumer Needs and Behavior (FCN), Faculty of Business Administration and Economics / E.ON Energy Research Center at the RWTH Aachen University, Germany.
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Prof. Dr. Rik W. De Doncker is Full Professor and Director of the E.ON Energy Research Center at RWTH Aachen University. He leads the Institute for Power Generation and Storage (PGS) and the Institute for Power Electronics and Electrical Drives (ISEA), Faculty of Electrical Engineering and Information Technology at the RWTH Aachen University, Germany.
A. Bausch and B. Schwenker (eds.), Handbook Utility Management, DOI: 10.1007/978-3-540-79349-6_17, © Springer-Verlag Berlin Heidelberg 2009
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Introduction
As a consequence of the worldwide wave of deregulation of electricity markets, environmental problems caused by excessive use of both nonrenewable and renewable energy resources, and rapid technological innovation, policy-makers, utilities, and final consumers alike are concerned about the sustainability and security of future energy supply and the occurrence of substantial stranded investments in case of imprudent investment decisions. At the same time, owing to the often lacking incentives in liberalized markets to replace old and invest in new capacity in a timely manner and to the growing demand for electricity, reserve capacities have generally been dwindling rapidly. From a short-term production efficiency point of view this might be desirable, but given the long planning and construction lead times of many (especially large-scale) power plant projects, there is some danger of emergencies and involuntary rationing of electricity supply (brownouts, blackouts).
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