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Title: Conventional Generation Asset Management with Renewable Portfolio Standards Using Real Options
Publication Number: NETL/DOE-2013/1619
Publication Date: 05/2013
Publication Type: Report/Publication
Contact: Peter Balash
Program/Technology: Environmental & Water
Electricity Grid
Infrastructure
Author: Dr. Jay Apt (CMU) Christian Blanco (CMU) Paulina Jaramillo (CMU)
Synopsis: The transition to a more renewable generation mix under a competitive electricity market will require individual power producers to use sophisticated tools to value conventional generators. Owners will need to understand what market prices signal new investments, temporarily suspending operation, reactivating mothballed generators or permanently abandoning a plant. Net present valuation from a traditional discounted cash flow analysis is limited in capturing the value of generation technologies, and it does not provide an optimal investment criterion. We present and evaluate a closed-form decision support framework using a Spark Spread Real Options approach to value generation assets and to capture optimal market price signals that minimizes financial risks of individual power producers under a transition towards a more renewable energy fleet.
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