Flexibility Options for Lignite-Fired Power Plants: A Real Options Approach

Germany's energy system transformation process "Energiewende" implies, on the one hand, the promotion of renewable energy sources and, on the other hand, difficulties in the profitable operation of many modern conventional power plants due to increasing shares of renewable electricity and decreasing electricity wholesale prices. Nevertheless, the prioritized conventional power generation technologies are still needed in times of low wind and solar power generation in order to maintain the security of electricity supply. Regarding these aspects and the specific situation in the federal state of North Rhine-Westphalia, the problem of further operation of lignite-fired power plants is of particular importance. In the study undertaken we tackled the following research questions: Should lignite-fired power plants be operated without any changes until the end of their lifetime? Can already existing lignite-fired power plants be operated more flexibly? If so, which flexibility options should be taken into consideration? What is the optimal investment time for these flexibility options? Are investments in other power generation technologies more suitable for ensuring system stability than investing in the retrofitting of existing lignite-fired power plants is? To answer these questions, we propose an optimization model that is based on real options analysis (ROA) and, more precisely, on the option of choosing. In the proposed model, the economic as well as technical aspects of the power plant operation are taken into consideration for the profitability calculations. Moreover, the results show the importance of the subsidies for lignite-fired power plants and their further operation.