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Efficiency rents of pumped-storage plants and their uses for operation and investment decisions

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We apply duality methods of linear and convex programming to the problems of operation and rental valuation of facilities for conversion and storage of cyclically priced goods, e.g. , energy. Both problems are approached by shadow-pricing the stock (which is a purely intermediate commodity); and if the given market price p for the final good is a continuous function of time, then the stock's shadow price function ? is shown to be unique (and continuous). Therefore, despite being perfect Allen-Hicks complements, the plant's capacities have definite and separate marginal values, which are expressed in terms of ? (and p). In particular, the unit reservoir rent equals the total positive variation of ? over the cycle. The optimal storage policy is also given in terms of ? and p). The marginal capacity values are used to determine the optimum investment. The framework can accommodate related storage problems (such as hydroelectric generation).

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en

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application/pdf

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http://eprints.lse.ac.uk/19336/1/Efficiency_Rents_of_Pumped-Storage_Plants_and_their_Uses_for_Operation_and_Investment_Decisions.pdf

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