ArtĆ­culo

Real option valuation of power transmission investments by stochastic simulation

Pringles, Rolando Marcelo Icon; Olsina, Fernando Gabriel Icon; Garces, Francisco Felipe Icon

Otros responsables

Fecha

01/2015

Editorial

Elsevier

Revista

Energy Economics

TĆ­tulo del libro

Nombre del evento

Fecha del evento

Institución organizadora

ISSN

0140-9883

eISSN

ISBN

Idioma

InglƩs

Tipo del evento

Clasificación temÔtica

Resumen

Network expansions in power markets usually lead to investment decisions subject to substantial irreversibility and uncertainty. Hence, investors need valuing the flexibility to change decisions as uncertainty unfolds progressively. Real option analysis is an advanced valuation technique that enables planners to take advantage of market opportunities while preventing or mitigating losses if future conditions evolve unfavorably. In the past, many approaches for valuing real options have been developed. However, applying these methods to value transmission projects is often inappropriate as revenue cash flows are path-dependent and affected by a myriad of uncertain variables. In this work, a valuation technique based on stochastic simulation and recursive dynamic programming, called Least-Square Monte Carlo, is applied to properly value the deferral option in a transmission investment. The effect of option“s maturity, the initial outlay and the capital cost upon the value of the postponement option is investigated. Finally, sensitivity analysis determines optimal decision regions to execute, postpone or reject the investment projects.

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Licencia Creative Commons

Excepto donde se indique lo contrario, la licencia de este Ć­tem se describe como by-nc-nd