Quantifying the value of investing in distributed natural gas and renewable electricity systems as complements: Applications of discounted cash flow and real options analysis with stochastic inputs

Abstract:

One energy policy objective in the United States is to promote the adoption of technologies that provide consumers with stable, secure, and clean energy. Recent work provides anecdotal evidence of natural gas (NG) and renewable electricity (RE) synergies in the power sector, however few studies quantify the value of investing in NG and RE systems together as complements. This paper uses discounted cash flow analysis and real options analysis to value hybrid NG-RE systems in distributed applications, focusing on residential and commercial projects assumed to be located in the states of New York and Texas. Technology performance and operational risk profiles are modeled at the hourly level to capture variable RE output and NG prices are modeled stochastically as geometric Ornstein-Uhlenbeck (OU) stochastic processes to capture NG price uncertainty. The findings consistently suggest that NG-RE hybrid distributed systems are more favorable investments in the applications studied relative to their single-technology alternatives when incentives for renewables are available. In some cases, NG-only systems are the favorable investments. Understanding the value of investing in NG-RE hybrid systems provides insights into one avenue towards reducing greenhouse gas emissions, given the important role of NG and RE in the power sector.

Highlights

• Natural gas and renewable electricity can be viewed as complements.

• We model hybrid natural gas and renewable electricity systems at the hourly level.

• We incorporate variable renewable power output and uncertain natural gas prices.

• Hybrid natural gas and renewable electricity systems can be valuable investments.
...
Under standard electricity rates and without incentives for solar, the hybrid NG-RE investment would take 14.46 years to payoff (or 6.45 years with incentives). These figures are 12.6 and 4.27, respectively, under a TOU (Time of Use) electricity rate structure and when net metering is available.

Similarly, for the case of a hospital located in Suffolk County, NY, the hybrid NG-RE systems consistently produce positive NPVs (Net Present Values) and ROVs (and generally more favorable outcomes than the single technology alternatives), and the payback periods are much lower than the residential applications given the scale of the investment.... Investing in a hybrid NG-RE system pays off in 4.98 years without incentives (3.25 years with incentives) under a standard electricity rate structure, and respectively, 4.54 years without incentives (and 2.96 years with incentives) under TOU rates and net metering. On the other hand, while the hybrid NG-RE systems are more attractive than their single-technology alternatives with solar incentives, the NG-only system is more attractive when incentives are unavailable. Again, all DG (Distributed Generation) systems are economically favorable relative to BAU, and the same patterns comparing the findings under high NG price volatility relative to low NG price volatility unfold.

A New Approach to an Age-Old Problem: Solving Externalities by Incenting Workers Directly

Understanding motivations in the workplace remains of utmost import as economies around the world rely on increases in labor productivity to foster sustainable economic growth. This study makes use of a unique opportunity to “look under the hood” of an organization that critically relies on worker effort and performance. By partnering with Virgin Atlantic Airways on a field experiment that includes over 40,000 unique flights covering an eight-month period, we explore how information and incentives affect captains’ performance. Making use of more than 110,000 captain-level observations, we find that our set of treatments—which include performance information, personal targets, and prosocial incentives—induces captains to improve efficiency in all three key flight areas: pre-flight, in-flight, and post-flight. We estimate that our treatments saved between 266,000-704,000 kg of fuel for the airline over the eight-month experimental period. These savings led to between 838,000-2.22 million kg of CO2 abated at a marginal abatement cost of negative $250 per ton of CO2 (i.e. a $250 savings per ton abated) over the eight-month experimental period. Methodologically, our approach highlights the potential usefulness of moving beyond an experimental design that focuses on short-run substitution effects, and it also suggests a new way to combat firm-level externalities: target workers rather than the firm as a whole.

https://en.wikipedia.org/wiki/Environmental_impact_of_aviation

http://www.nber.org/papers/w22316?sy=316
by Greer K. Gosnell, John A. List, Robert Metcalfe

National Bureau of Economic Research (NBER) www.NBER.org

NBER Working Paper No. 22316; Issued in June 2016

Estimation of the global impacts of aviation-related noise using an income-based approach

http://www.sciencedirect.com/science/article/pii/S0967070X14000511

Highlights

• We conduct a meta-analysis of 63 hedonic pricing noise studies and develop an income-based model to assess aviation noise impacts.

• We derive a relationship between city-level personal income and the willingness to pay for one decibel of noise reduction.

• The income-based model can be used to perform cost-benefit analysis of aviation noise policies on a global scale.

• The capitalized monetary impacts of aviation noise in 2005 are estimated to be $23.8 billion around 181 airports worldwide.

Abstract:

Current practices for assessing the monetary impacts of aviation noise typically use hedonic pricing methods that estimate noise-induced property value depreciation. However, this approach requires detailed knowledge of local housing markets, which is not readily available at a fine resolution for most airport regions around the world. This paper proposes a new noise monetization method based on city-level personal income, which is often more widely available. Underlying the approach is a meta-analysis of 63 hedonic pricing studies from eight countries, conducted between 1970 and 2010, which is used to derive a general relationship between average city-level personal income and the Willingness to Pay for noise abatement. Applying the new model to income, noise, and population data for 181 airports worldwide, the global capitalized monetary impacts of commercial aviation noise in 2005 are estimated to be $23.8 billion, with a Net Present Value of $36.5 billion between 2005 and 2035 when a 3.5% discount rate is applied. Comparison with previous results based on real estate data yields a difference of −34.2% worldwide and −9.8% for the 95 US airports in the analysis. The main advantages of the income-based model are fewer data limitations and the relative ease of implementation compared to the hedonic pricing methods, making it suitable for assessing the monetary impacts of aviation noise reduction policies on a global scale.

http://www.stopstanstedexpansion.com/photos_hatfield_heath_noise_meeting.html

by Qinxian He 1,  Christoph Wollersheim 2, Maryalice Locke 3 and Ian Waitz 1

Transport Policy via Elsevier Science Direct www.ScienceDirect.com

Available online 21 March 2014; In Press, Corrected Proof

http://dx.doi.org/10.1016/j.tranpol.2014.02.020

Keywords: Aircraft noise; Hedonic pricing; Willingness to pay; Aviation noise impacts; Cost-benefit analysis

To Sell Or Not To Sell: The Impacts of Pollution on Home Transactions

http://yosemite.epa.gov/ee/epa/eed.nsf/WPNumber/2014-01
Abstract:

Numerous nonmarket valuation studies have examined the impacts of environmental commodities on house prices, but little attention has been given to how shifts in these commodities affect the occurrence of home transactions, and the resulting welfare implications. Using a novel theoretical framework and an empirical analysis of homes impacted by petroleum releases from underground storage tanks, this paper demonstrates that changes in environmental quality can significantly impact a household’s decision to sell their home, and that this change in behavior has important implications towards theoretical welfare measures and empirical estimates. A discrete time duration model is estimated using a panel of single-family homes from 2000 to 2007. The dependent variable is the annual occurrence of a sale at each individual home. I find that contamination and cleanup activities in close proximity significantly impact the probability that a home is sold. Most striking is that this probability is reduced by about 50% during ongoing cleanup. This finding is most pronounced among lower quality homes and where an exposure pathway is present.

Source US EPA - Removal of leaking Underground Storage Tank and contaminated soil

Depro and Palmquist (2012) ... estimate a discrete-time binary choice model, and examine how characteristics of the home, the household, macroeconomic trends, and of particular interest, changes in local ozone levels, impact the probability that a household decides to sell their home and successfully does so in a given year. They find that the probability of a household moving and choosing a new housing bundle is 2.1% higher when ozone concentrations increase by 1 part-per-billion (ppb), relative to the levels at the time the home was first purchased. They conclude that households do exhibit ozone averting actions in deciding when to re-optimize and choose a new home. Depro and Palmquist also find that households are more likely to move when ozone levels improve, an effect that is slightly less (a 1 ppb decrease in ozone implies a 0.5% increase in the odds of moving).

...

Before a leak is discovered the probability that a home within 500 meters of a LUST is sold in a given year is 4.81%. According to model 2.A the discovery of a leak increases the annual probability of a sale 0.46 percentage points, from 4.81% to 5.27%. During cleanup, however, it seems the annual probability of a sale decreases to 4.27% (=4.81-0.54). After closure of the leak investigation and completion of cleanup, the annual probability of a sale seems to increase again to 5.29% (=4.81+0.48), which is above the transaction rate prior to the discovery of the leak. Although the effects of the leak and cleanup are seemingly small, the percent changes in the annual probability of a sale range from negative 11% to positive 10.0%....