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Annualization of renewable investment costs for finite horizon electricity pricing and cost recovery

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IIT-15-015A.pdf (670.1Kb)
Date
2021-02-02
Author
Campos Fernández, Francisco Alberto
Villar Collado, José
Centeno Hernáez, Efraim
Estado
info:eu-repo/semantics/publishedVersion
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Abstract
 
 
The increasing penetration of renewable electricity generation is complicating the bidding and estimating processes of electricity prices, partly due to the shift of the overall cost sensitivity from operation (fuel) costs to investment costs. However, cost minimization models for capacity expansion are frequently based on the principle that, for a perfectly adapted system allowing non-served energy, marginal remuneration allows overall operation and investments costs recovery. In addition, these models are usually formulated as finite-horizon problems when they should be theoretically solved for infinite horizons under the assumption of companies’ infinite lifespan. But infinite horizon cannot be dealt with mathematical programming since it requires finite sets. Previous approaches have tried to overcome this drawback with finite horizon models that tend asymptotically to the original infinite ones and, in many cases, the investment costs are annualized based on the plants’ lifespan, sometimes including a cost residual value. This paper proposes a novel approach with a finite horizon that guarantees the investment costs recovery. It is also able to obtain the marginal electricity costs of the original infinite horizon model, without the need for residual values or non-served energy. This new approach is especially suited for long-term electricity pricing with investments in renewable assets when non-served demand is banned or when no explicit capacity remuneration mechanisms are considered.
 
URI
https:doi.org10.3390su13041993
Annualization of renewable investment costs for finite horizon electricity pricing and cost recovery
Tipo de Actividad
Artículos en revistas
ISSN
2071-1050
Materias/ categorías / ODS
Instituto de Investigación Tecnológica (IIT)
Palabras Clave

infinite horizon models; investment theory; marginal pricing; renewable technologies
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