Generation Portfolio and Investment Timing Until 2030: A Real Options Approach for Germany

Abstract

Political restraints and proceeding effects of global warming cause the need for a change in electricity generation in Europe and its member states. As a consequence, German utilities face uncertainties of different types than in the past. Traditional investment valuation approaches are not able to consider these uncertainties and the involved flexibilities of decision in an appropriate way. The purpose of this paper is to determine the German power plant portfolio until 2030 taking into account investment flexibility. The analysis is based on the real options approach. Results show that total capacity investments compensate phased-out generation capacity over time and that the share of renewables in the future generation portfolio slightly increases. Carbon Capture and Storage technology is applied as soon as it is available. With the presented model it can be demonstrated that obligations like quotas for renewables sources heighten indeed their diffusion but do not automatically lead to a reduction of CO2 emissions.