TY - CHAP

T1 - A Real Options Approach to Determine the Optimal Choice Between Lifetime Extension and Repowering of Wind Turbines

AU - Stetter, Chris

AU - Heumann, Maximilian

AU - Westbomke, Martin

AU - Stonis, Malte

AU - Breitner, Michael H.

N1 - Copyright: © 2020 The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG

PY - 2019

Y1 - 2019

N2 - The imminent end-of-funding for an enormous number of wind energy turbines in Germany until 2025 is confronting affected operators with the challenge of deciding whether to further extend the lifetime of old turbines or to repower and replace it with new and more efficient ones. By means of a real options approach, we combine two methods to address the question if extending the operational life of a turbine is economically viable, and if so, for how long until it is replaced by a new turbine. It may even be the case that repowering before leaving the renewable energy funding regime is more viable. The first method, which is the net present repowering value, determines whether replacing a turbine before the end of its useful life is financially worthwhile. The second method, which follows a real options approach, determines the optimal time to invest in the irreversible investment (i.e., replacing the turbine) under uncertainty. The combination allows for continuously evaluating the two options of lifetime extension and repowering in order to choose the most profitable end-of-funding strategy and timing. We finally demonstrate the relevance of our approach by applying it to an onshore wind farm in a case study.

AB - The imminent end-of-funding for an enormous number of wind energy turbines in Germany until 2025 is confronting affected operators with the challenge of deciding whether to further extend the lifetime of old turbines or to repower and replace it with new and more efficient ones. By means of a real options approach, we combine two methods to address the question if extending the operational life of a turbine is economically viable, and if so, for how long until it is replaced by a new turbine. It may even be the case that repowering before leaving the renewable energy funding regime is more viable. The first method, which is the net present repowering value, determines whether replacing a turbine before the end of its useful life is financially worthwhile. The second method, which follows a real options approach, determines the optimal time to invest in the irreversible investment (i.e., replacing the turbine) under uncertainty. The combination allows for continuously evaluating the two options of lifetime extension and repowering in order to choose the most profitable end-of-funding strategy and timing. We finally demonstrate the relevance of our approach by applying it to an onshore wind farm in a case study.

U2 - 10.1007/978-3-030-48439-2_35

DO - 10.1007/978-3-030-48439-2_35

M3 - Other contribution in a book, report, anthology or conference proceeding

SN - 978-3-030-48438-5

T3 - Operations Research Proceedings (ORP)

SP - 291

EP - 297

BT - Operations Research Proceedings 2019

A2 - Neufeld, Janis S.

A2 - Buscher, Udo

A2 - Lasch, Rainer

A2 - Möst, Dominik

A2 - Schönberger, Jörn

PB - Springer Nature Switzerland AG

CY - Cham

T2 - Annual International Conference of the German Operations Research Society (GOR) 2019

Y2 - 4 September 2019 through 6 September 2019

ER -