Upgrading hydropower plants with storage: timing and capacity choice

This paper presents an investment decision support framework for a hydropower producer with storage facilities that is considering upgrading the production capacity in its power plant. A real options framework is proposed to support the investment decision, where both investment timing and capacity choice are considered. Using a case from a Norwegian hydropower producer, we employ the framework to evaluate investment opportunities in this company. Our main contribution is an approach that combines hydropower scheduling and real options valuation for already constructed power plants. Furthermore, the results from our case analysis suggest feasible investment strategies for the hydropower producer.