Lumpy energy commitments under an oligopoly alter the market strength of rival firms, and this elicits responses that are seldom cooperative. Following option games reasoning, this chapter presents analyses of how symmetric or asymmetric adoption of power technologies would achieve outcomes that differ from net present values (NPVs) under specified market scenarios. Through the interacting effects of prices, volumes, and costs, often altered by rival firms’ actions, renewables alters portfolio values by eroding power prices. The simulations examine how market positions are altered when rival firms take symmetric or asymmetric diversification strategies. To make option games accessible to managers, relevant intuitions are presented, as well as a conceptual approach, to help to quantify feasible outcomes.
- Dixit, A. K., & Nalebuff, B. (1991). Thinking strategically: The competitive edge in business, politics and everyday life. New York: Norton.Google Scholar
- Mason, R., & Weeds, H. (2000). Networks, options and pre-emption. Discussion Papers in Economics and Econometrics, 41, University of Southampton, United Kingdom.Google Scholar
- Smit, H. J. T., & Trigeorgis, L. (2004). Strategic investment: Real options and games. Princeton, NJ: Princeton University Press.Google Scholar
- Traber, T., & Kemfert, C. (2009). Gone with the wind?—Electricity markets and incentives to invest in thermal power plants under increasing wind energy supply. Berlin: German Institute for Economic Research.Google Scholar