Small scale hydroelectric power plants in Norway. Some microeconomic and environmental considerations

Abstract

The development of small-scale hydroelectric power plants in Norway is determined by natural conditions, policies, attitudes and property rights. The owner of the river is the central decision maker. It is he/she who decides whether he/she will develop the power plant himself/herself, whether he/he wants to enter into a contract with an external investor and let him/her develop the power plant, whether he/she will sell his/her property rights or postpone the decisions. All available choices will involve risk. In order for him/her to make the best choice, he/she must find the certainty equivalent to each of the choices and choose the one with the highest certainty equivalent. To find the certainty equivalent, we use the utility theory of John von Neumann and Oskar Morgenstern. The owner of the river makes the decision that gives him/her the greatest utility when both economic and non-economic effects are assessed within the opportunity set made by the local and the central authorities.