NDLI: Exercising real unit operational options under price uncertainty

Content Provider	IEEE Xplore Digital Library
Author	Chung-Li Tseng
Copyright Year	2000
Description	Author affiliation: Dept. of Civil Eng., Maryland Univ., College Park, MD, USA (Chung-Li Tseng)
Abstract	In this paper, we use the real options framework to value the operation flexibility of a power plant. The power plant operation is formulated as a multi-stage stochastic problem. We assume that there are hourly spot markets for both electricity and the fuel used by the generator, and that their prices follow some Ito processes. At each hour, the power plant operator must decide whether or not to run the unit so as to maximize expected profit. However, the unit operation is subject to decision lead times and minimum uptime and downtime constraints, so the commitment decision must take into account inter-temporal effects. In this paper, we present power asset valuation using discrete-time price trees for correlated price processes for both electricity and fuel, such as geometric mean reverting processes. With price trees, the valuation problem is solved using stochastic dynamic programming. Numerical results are also presented.
Starting Page	436
Ending Page	440
File Size	456915
Page Count	5
File Format	PDF
ISBN	0780359356
DOI	10.1109/PESW.2000.850003
Language	English
Publisher	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Publisher Date	2000-01-23
Publisher Place	Singapore
Access Restriction	Subscribed
Rights Holder	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Subject Keyword	Uncertainty Power generation Fuels Cost accounting Stochastic processes Electricity supply industry deregulation Character generation Civil engineering Educational institutions Dynamic programming
Content Type	Text
Resource Type	Article

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