The Economic Life of Wind Turbines
Item is


Riis Madsen, Johan1, Forfatter
Keiding, Hans2, Vejleder
1Det Samfundsvidenskabelige Fakultet, Københavns Universitet, København, Danmark, diskurs:7001              
2Økonomisk Institut, Det Samfundsvidenskabelige Fakultet, Københavns Universitet, København, Danmark, diskurs:7014              
skjul Ophav
Vis Ophav


Ukontrollerede emneord: -
 Abstract: In this paper I address the problem of determining the economic life of wind turbine generators. The economic life depends on the alternative to continued operation. The alternative might simply be to decommission the turbine if it has become unprofitable, or it might be to replace it by a larger and more efficient model. In both cases the decision is non-trivial because it depends on the evolution of uncertain parameters such as future costs and revenue. I suggest to view these decisions as real options. I formalize the decision using a real option valuation model in continuous time that I solve using dynamic programming. The option value should be recognised as part of the opportunity cost of making the decision because the decision is irreversible. I find that volatility in the uncertain parameters increases the value of the option. I derive decision rules of when to decommission or repower, and I compare them to decision rules based on the classical net present value principle. I find that the net present value rule is sub-optimal because it ignores the inherent uncertainty of the problem and fails to account for the full opportunity cost of making the decisions. The option approach emphasises the value of waiting for more information. It effectively suggest to postpone decommissioning beyond the point where the turbine has become unprofitable, and to postpone repowering beyond the point where the expected value of the replacement turbine exceeds the expected value of the existing turbine.
skjul Indhold
Vis Indhold


Master(5).pdf (Hovedtekst)
Mime-type / størrelse:
application/pdf / 2MB
Copyright dato:
Copyright information:
De fulde rettigheder til dette materiale tilhører forfatteren.
skjul Filer
Vis Filer


Bogmærk denne post:
 Type: Speciale
Alternativ titel: Vindmøllers Økonomiske Levetid
skjul Basal
Vis Basal


Vis Links


Sprog: English - eng
 Datoer: 2013-06-28
 Sider: -
 Publiceringsinfo: København : Københavns Universitet
 Indholdsfortegnelse: 1. Introduction 5
2. Economics of WTGs 7
2.1. Production 7
2.2. Income 9
2.3. Operation and maintenance 17
2.4. Capital expenditure 19
2.5. Life of a WTG . 21
3. WTG investment decisions 24
3.1. Defining decommissioning and repowering as investment decisions 24
3.2. Review of models for assessing investment decisions 28
4. Evaluating WTG investment decisions using a real option approach 34
4.1. Uncertain profit margin 35
4.2. Uncertain O&M costs . 47
4.3. Price uncertainty and repowering 56
5. Application of the model 67
5.1. Parameter estimates . 67
5.2. Discount rate . 74
5.3. Other issues 76
6. Conclusion .77
Appendix A - Stochastic processes 79
Appendix B - Ito’s lemma81
References .82
 Note: -
 Type: Speciale
skjul Detaljer
Vis Detaljer


Vis Kilde