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

Horsley, Anthony and Wrobel, Andrew J. (2000) Efficiency rents of pumped-storage plants and their uses for operation and investment decisions. TE (405). Suntory and Toyota International Centres for Economics and Related Disciplines, London, UK.

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Abstract

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).

Item Type: Monograph (Discussion Paper)
Official URL: http://sticerd.lse.ac.uk
Additional Information: © 2000 the authors
Divisions: Economics
STICERD
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
Q Science > QA Mathematics
JEL classification: L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L94 - Electric Utilities
D - Microeconomics > D4 - Market Structure and Pricing > D46 - Value Theory
D - Microeconomics > D2 - Production and Organizations > D24 - Production; Cost; Capital and Total Factor Productivity; Capacity
L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L95 - Gas Utilities; Pipelines; Water Utilities
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods and Programming > C61 - Optimization Techniques; Programming Models; Dynamic Analysis
Sets: Collections > Economists Online
Departments > Economics
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Research centres and groups > Computational, Discrete and Applicable Mathematics@LSE (CDAM)
Date Deposited: 12 Jul 2008 11:12
Last Modified: 05 Sep 2020 23:04
URI: http://eprints.lse.ac.uk/id/eprint/19336

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