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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 School of Economics and Political Science, 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
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
Q Science > QA Mathematics
Journal of Economic Literature Classification System: 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)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 405
Date Deposited: 12 Jul 2008 11:12
URL: http://eprints.lse.ac.uk/19336/

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