Optimal timing for generation investment with uncertain emission mitigation policy

European Transactions on Electrical Power (Impact Factor: 0.89). 01/2011; 21(1):1015 - 1027. DOI: 10.1002/etep.493

ABSTRACT In view of the fact that different mechanisms for mitigating the CO2 emission have been employed or proposed in different countries or regions, and those already implemented are still in an evolutionary procedure, the future CO2 emission prices would be highly uncertain. Given this background, an effort is made for investigating the problem of generation investment decision-making in electricity market environment with uncertainties from the climate change policy for limiting the CO2 emission. According to the changing characteristics of the uncertain factors, the models of the fuel prices, electricity prices, and CO2 emission prices are respectively presented first. Next, under the existing real option approach (ROA) based methodological framework for the generation investment decision-making problem, a mathematical model accommodating multiple kinds of uncertainties and an efficient solving method are developed. Finally, the proposed model and method are illustrated by a numerical example with different scenarios. Copyright © 2010 John Wiley & Sons, Ltd.

14 Reads
  • [Show abstract] [Hide abstract]
    ABSTRACT: Real options (RO) theory is well known for enhancing the value of projects under uncertainty. This is achieved by modelling the flexibility that managers possess to adjust the projects in response to changes in their environments. Based on this, RO theory could be used to tackle current energy and environmental issues by enhancing the value of electricity generation projects (EGP), especially renewable energy projects (REP). The potential of RO theory to increase the value of EGP and REP has been a driver for new research in the topic. However, existing literature is still scarce, diverse, and tends to neglect the state of the art of RO theory (e.g. RO in the design of projects). RO studies tend to ignore the use of RO in the design of projects as they are difficult to formulate without the help of experts on the projects' designs. This paper aims to encourage novel research in the application of RO theory to EGP and REP. For this purpose, a critical review of RO theory, its state of the art, and its applications to EGP and REP is presented. This review identifies current areas of interest and gaps in knowledge in this research area. It is concluded that new and novel RO research should address the state of the art of RO theory, and uncertainties that are exclusive for specific types of projects. This future research will require the involvement of electrical engineers specialised in the design of EGP and REP.
    Renewable and Sustainable Energy Reviews 03/2013; 19:573-581. DOI:10.1016/j.rser.2012.11.059 · 5.90 Impact Factor