Cost-effective design of ringwall storage hybrid power plants: A real options analysis

• Economic viability, optimal size, and siting of a hybrid ringwall hydro power plant.
• Real options analysis for optimal investment timing and stochastic storage volumes.
• Stochastic PV and solar power production affects optimal size of the storage device.
• Monte Carlo simulation is used for wind/solar power, el. price, and investment cost.
• Numerical computations for two different hybrid ringwall storage plant scenarios.

We study the economic viability and optimal sizing and siting of a hybrid plant that combines a ringwall hydro storage system with wind and solar power plants (ringwall storage hybrid power plant, RSHPP). A real options model is introduced to analyze the economics of an onshore RSHPP, and in particular of the varying storage volume in light of the stochastic character of wind and solar power, as well as the optimal investment timing under uncertainty. In fact, many uncertainties arise in such a project. Energy production is determined by the stochastic character of wind and solar power, and affects the optimal size of the storage device. Monte Carlo simulation is performed to analyze the following sources of uncertainty: (i) wind intensity and solar irradiation; (ii) future electricity price; and (iii) investment costs. The results yield the optimal size of the storage device; the energy market on which the operator should sell the electricity generated; numerical examples for two different RSHPP scenarios; and a real options model for analyzing the opportunity to defer the project investment and thus to exploit the value of waiting.