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Pumped-storage project: A short to long term investment analysis including climate change

Published in Renewable & sustainable energy reviews. 2015, vol. 49, p. 91-99
Abstract New renewable energy needs flexibility, which can be provided by storage-hydropower. Climate change affects the potential of this technology in both a negative and a positive way, on one hand by altering runoff, and on the other hand by creating new investment opportunity. This paper provides an economic and financial analysis of a future project in a pumped-storage facility that may be initiated in the Swiss Alps following the glacier retreat. The area released may be considered for building a new reservoir. A complete and integrated model is developed based on the tools of analysis provided by econometrics, finance and operational research. The results show that under the present market conditions such an investment is not profitable. Unexpectedly, the sensitivity analysis shows that most of the time higher price volatility reduces annual revenue. Furthermore, the project's lifetime only has a marginal impact on the Net Present Value. The value of the concession, which is the right to use water, is also assessed on the basis of a real option analysis including a long-term horizon. Its present value is substantial even if the project is currently unprofitable. In the discussion, we go beyond the Swiss case study and highlight the implications for energy policy and market design.
Keywords Climate changeHydropowerInvestmentEnergy storageReal optionsMountainConcession
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Research group Energie, politique et économie
Swiss National Science Foundation: Swiss National project 61
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GAUDARD, Ludovic. Pumped-storage project: A short to long term investment analysis including climate change. In: Renewable & sustainable energy reviews, 2015, vol. 49, p. 91-99. doi: 10.1016/j.rser.2015.04.052 https://archive-ouverte.unige.ch/unige:75500

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Deposited on : 2015-09-29

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