Real option valuation of power transmission investments by stochastic simulation

• Published in: Energy economics Vol. 47; pp. 215 - 226
• Main Authors: Pringles, Rolando, Olsina, Fernando, Garcés, Francisco
• Format: Journal Article
• Language: English
• Published: Kidlington Elsevier B.V 01.01.2015; Elsevier Science Ltd
• Subjects: Capital; Capital costs; Cash flow; Classification; Computer simulation; Cost; Decision making models; Decisions; Dynamic programming; Economics; Electricity distribution; Energy economics; Energy market; Flexibility; Investment; Investments; Investors; Least squares method; Markets; Monte Carlo; Monte Carlo simulation; Power network; Power transmission; Real options; Real options analysis; Revenue; Sensitivity analysis; Stochasticity; Studies; Uncertainty; Valuation; C530; Power network; Uncertainty; Monte Carlo; O220; Investments; E220; D810; Real options; Flexibility; C630; C520

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 enable...