Valuing Expansions of the Electricity Transmission Network under Uncertainty: The Binodal Case
Transmission investments are currently needed to meet an increasing electricity demand, to address security of supply concerns, and to reach carbon-emissions targets. A key issue when assessing the benefits from an expanded grid concerns the valuation of the uncertain cash flows that result from the...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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MDPI AG
2011-10-01
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| Series: | Energies |
| Subjects: | |
| Online Access: | http://www.mdpi.com/1996-1073/4/10/1696/ |
| Summary: | Transmission investments are currently needed to meet an increasing electricity demand, to address security of supply concerns, and to reach carbon-emissions targets. A key issue when assessing the benefits from an expanded grid concerns the valuation of the uncertain cash flows that result from the expansion. We propose a valuation model that accommodates both physical and economic uncertainties following the Real Options approach. It combines optimization techniques with Monte Carlo simulation. We illustrate the use of our model in a simplified, two-node grid and assess the decision whether to invest or not in a particular upgrade. The generation mix includes coal- and natural gas-fired stations that operate under carbon constraints. The underlying parameters are estimated from observed market data. |
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| ISSN: | 1996-1073 |