The Optimal Investment Strategy of P2G Based on Real Option Theory

Zijuan Yang,Ming Zhao,Ciwei Gao

doi:10.1109/access.2019.2910259

Zijuan Yang, Ming Zhao + Show 1 more

Open Access

https://doi.org/10.1109/access.2019.2910259

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Abstract

This paper initially proposes a real options model for the investment of the Power-to-gas (P2G) plant based on uncertain operating cost which mainly refers to the price of electricity. Through the analysis of the uncertainty parameters affecting the operation of the P2G project, the mathematical model expressing the relations between the parameters of P2G operation cost, electricity price, sunk cost, and other parameters are established. The Brownian motion is utilized to describe the operation cost, based on which, the option value and the project value models of P2G are derived in detail. According to these two models, the optimal investment timing of the P2G device and the corresponding optimal investment capacity can be determined. The above models are verified by numerical simulation. In addition, the influence of the change of parameters on the investment timing and investment capacity in the real options model is studied. The results show that the volatility of electricity price has a greater impact on the option value of P2G project than that of other parameters. When there is a high operating cost uncertainty, waiting is a better option, and the investment can be performed when the operating cost falls to the cost with reference to the optimal investment timing.

Highlights

Energy storage device can effectively solve the unbalance matching between source and load at the aspect of the time and geographic location in power system
An option investment model of the electrolyzer device based on the uncertainty of operating cost is established, and the optimal investment timing and optimal investment capacity of the device are determined in this work
THE SOLUTION METHOD OF THE PROPOSED REAL OPTIONS MODEL OF P2G PROJECT The operating cost sequence E(t) of the P2G device is affected by the investment capacity WP2G, and the investment capacity WP2G is determined according to the drift rate αE and the volatility σE of the running cost sequence

Summary

INTRODUCTION

Energy storage device can effectively solve the unbalance matching between source and load at the aspect of the time and geographic location in power system. An option investment model of the electrolyzer device based on the uncertainty of operating cost is established, and the optimal investment timing and optimal investment capacity of the device are determined in this work. THE SOLUTION METHOD OF THE PROPOSED REAL OPTIONS MODEL OF P2G PROJECT The operating cost sequence E(t) of the P2G device is affected by the investment capacity WP2G, and the investment capacity WP2G is determined according to the drift rate αE and the volatility σE of the running cost sequence. In the case that the power energy used by the P2G device is completely obtained from the power market, the optimal timing and capacity of the investment and operation of the P2G project are determined using the above option model. In combination with other parameters r and hydrogen price Ru etc., the optimal investment capacity and timing can be derived according to the derivation of the above mathematical models

NUMERICAL SIMULATION

THE SENSITIVITY ANALYSIS OF PARAMETERS IN REAL OPTION MODEL

Findings

CONCLUSIONS