Investment Timing and Capacity Choice for Small-Scale Wind Power Under Uncertainty

S.-E. Fleten and K.M. Maribu (Norway)


Renewable Generation, Distributed Generation, Risk Analysis, Project Evaluation, Electricity Markets, Invest ment Appraisal, Real Options


This paper presents a method for evaluation of invest ments in small-scale wind power under uncertainty. It is assumed that the price of electricity is uncertain and that an owner of a property with wind resources has a deferra ble opportunity to invest in one wind power turbine within a capacity range. The model evaluates investment in a set of projects with different capacity. It is assumed that the owner substitutes own electricity load with electricity from the wind mill and sells excess electricity back to the grid on an hourly basis. The problem for the owner is to find the price levels at which it is optimal to invest, and in which capacity to invest. The results suggests it is optimal to wait for significantly higher prices than the net present value break-even. Optimal scale and timing depend on the expected price growth rate and the uncertainty in the fu ture prices.

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