Investments in Flexibility Measures for Gas-Fired Power Plants: A Real Options Approach
The promotion of electricity from renewable energy in Germany by means of guaranteed feed-in tariffs and preferential dispatch leads to difficulties in the profitable operation of many modern conventional power plants. Nevertheless, conventional power gen
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Abstract The promotion of electricity from renewable energy in Germany by means of guaranteed feed-in tariffs and preferential dispatch leads to difficulties in the profitable operation of many modern conventional power plants. Nevertheless, conventional power generation technologies with enhanced flexibility in their operational characteristics can contribute to balancing electricity supply and demand. For this reason, the operational flexibility of conventional power plants becomes important for the system and has an inherent economic value. The focus of this research is on high efficiency gas-fired power plants; we tackle the following three research questions from a plant owner’s perspective: (1) How can already existing conventional power plants be operated more flexibly and thus be made more profitable? (2) Which flexibility measures can be taken under consideration? (3) What is the optimal timing to invest in flexibility measures? To answer these questions we propose an optimization model for the flexible operation of existing gas-fired power plants that is based on real options analysis (ROA). In the model, the economic and technical aspects of the power plant operation are explicitly taken into account. Moreover, the spark spread, which is an important source of uncertainty, is used for the definition of the flexible plant operation in terms of different load levels and corresponding efficiency factors. The usefulness of the proposed model is illustrated with a case study mimicking the retrofitting decision process.
1 Introduction Markets with high shares of fluctuating renewable energy sources require that conventional power plants are able to react to these fluctuations in a more flexible manner. Besides grid expansion, storage capacity, and demand-side management, the balance B. Glensk (B) · R. Madlener School of Business and Economics/E.ON Energy Research Center, Institute for Future Energy Consumer Needs and Behavior (FCN), RWTH Aachen University, Mathieustrasse 10, 52074 Aachen, Germany e-mail: [email protected] R. Madlener e-mail: [email protected] © Springer International Publishing Switzerland 2017 K.F. Dœrner et al. (eds.), Operations Research Proceedings 2015, Operations Research Proceedings, DOI 10.1007/978-3-319-42902-1_86
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between the renewables-based and conventional power generation technologies can be achieved by better exploiting modern, highly-efficient power plants. Their flexible operation can be enhanced by using additional components such as power electronic converters, storage systems, or upgrades of existing components to the best available technology. Being specific to a certain power plant, and given the lack of a liquid market, the investment in upgrading equipment can be regarded as irreversible, justifying the real options approach, which becomes more relevant in an uncertain energy market environment. ROA offers the consideration of different types of options (e.g. to invest, abandon, expand, contract, shut down
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