Economics of Plant Energy Savings Projects in a Changing Market
Energy prices have exhibited significant volatility in recent years. For example, natural gas pricesranged from $4 to $15 per MM BTU's in calendar years 2005 through 2011. Future prices are uncertainbut are likely to retain a high level of volatility. This volatility complicates analysis of potential plantcapital investments to reduce energy usage, in particular those that involve consideration of alternateenergy sources, since traditional financial investment valuation assumes that future cash flows areknown exactly. Yet, this is clearly not the case for many energy saving investments. In addition, futureprice probability functions may be best characterized as non symmetric and economic objectivefunctions as non-linear further complicating investment analysis. Failure to recognize these effects canresult in incorrectly valuing the potential financial return of the investment. In this paper, appropriatetechniques to evaluate such investments are presented along with case studies illustrating the approach.
Year of publication: |
2011-06-07
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Publisher: |
Energy Systems Laboratory / Texas A&M University |
Subject: | Energy Saving Project Investment Analysis | Risk | Uncertainty | Monte Carlo Analysis |
Saved in:
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