Locatelli, G, Invernizzi, DC and Mancini, M (2016) Investment and risk appraisal in Energy Storage Systems: a real options approach. Energy, 104. pp. 114-131. ISSN 0360-5442
Abstract
The increasing penetration of variable renewable energy is becoming a key challenge for the management of the electrical grid. Electrical Energy Storage Systems (ESS) are one of the most suitable solutions to increase the flexibility and resilience of the electrical system. This paper presents an innovative methodology for the appraisal of the investment in ESS. The methodology is based on the Real Option Analysis and it is able to properly consider investment risks and uncertainties as well as the options available for the investor. The paper assesses the value of the option to wait for a change in the market conditions before investing and re-evaluates the profitability of the investment after each step of the development of the ESS project. In order to exemplify relevant results, this method is applied to the UK energy market and assesses the technical and economic feasibility of investing in ESS operating price arbitrage and Short Term Operating Reserves. The results show that the implementation of the Real Option Analysis increases the economic performance of ESS. Nevertheless, ESS still requires limited incentives to be economically viable.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2016, Elsevier Ltd. This is an author produced version of a paper published in Energy. Uploaded in accordance with the publisher's self-archiving policy. |
Keywords: | Energy Storage; PHS; CAES; Economics; Investment Appraisal; Real Options Analysis |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Engineering & Physical Sciences (Leeds) > School of Civil Engineering (Leeds) > Institute for Resilient Infrastructure (Leeds) |
Depositing User: | Symplectic Publications |
Date Deposited: | 28 Jun 2016 10:13 |
Last Modified: | 21 Apr 2017 20:31 |
Published Version: | http://dx.doi.org/10.1016/j.energy.2016.03.098 |
Status: | Published |
Publisher: | Elsevier |
Identification Number: | 10.1016/j.energy.2016.03.098 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:97158 |