THERMAL GENERATION ASSET VALUATION PROBLEMS IN A COMPETITIVE MARKET

With deregulation in the electric power industry, traditional approaches for minimizing production costs have become unfit for the present competitive environment. Owners of generation assets must now consider price uncertainty in solving unit commitment problems for scheduling and operating their power plants. Operation flexibility of the generating assets, such as fuel switching and overfire, becomes an important issue. Because in a competitive market with volatile electricity prices, these flexibility may add significant values. On the other hand, operational constraints, such as ramp and minimum uptime/downtime constraints, present physical limits for the generating assets to flexibly react to rapid price changes, which have a negative effect on the asset value. Both of the operational flexibility and operational constraints must be considered simultaneously so as to achieve optimal operation under uncertainty. This dissertation devotes to this very important subject. Deregulation in the power industry allows new firms to freely enter the generation markets. As a result, capacity expansion is no longer the responsibility of local utility companies and has become a pure investment problem. Overestimating the value of a power may result in stranded capital for a long time period. Therefore, to ensure a successful investment a fair valuation method is essential. The generation asset valuation must fully account for market uncertainty, which results in not only risks but also opportunities. To minimize the risks, one must first have sound models for market uncertainties. In this research, we consider not only the uncertainties of electricity price and fuel price, but also environment temperature because some characteristics of power plants may be sensitive to the temperature. To fully capitalize on profitable opportunities arising in the marketplace due to price spreads of different commodities, such as fuel and electricity, a real options approach is considered, in which different options are exercised at different but `optimal' timings. Overall, this research is expected to contribute a new methodology for fair generation valuation that accounts for multiple and interdependent uncertainties and complex physical constraints. The proposed approach can help operators achieving optimal operation and investors making appropriate investment decisions. In the long run, customers also benefit from the improved societal efficiency

Flexible Transmission Network Planning Considering the Impacts of Distributed Generation

The restructuring of global power industries has introduced a number of challenges, such as conflicting planning objectives and increasing uncertainties,to transmission network planners. During the recent past, a number of distributed generation technologies also reached a stage allowing large scale implementation, which will profoundly influence the power industry, as well as the practice of transmission network expansion. In the new market environment, new approaches are needed to meet the above challenges. In this paper, a market simulation based method is employed to assess the economical attractiveness of different generation technologies, based on which future scenarios of generation expansion can be formed. A multi-objective optimization model for transmission expansion planning is then presented. A novel approach is proposed to select transmission expansion plans that are flexible given the uncertainties of generation expansion, system load and other market variables. Comprehensive case studies will be conducted to investigate the performance of our approach. In addition, the proposed method will be employed to study the impacts of distributed generation, especially on transmission expansion planning.

Nuclear Power: a Hedge against Uncertain Gas and Carbon Prices?

High fossil fuel prices have rekindled interest in nuclear power. This paper identifies specific nuclear characteristics making it unattractive to merchant generators in liberalised electricity markets, and argues that non-fossil fuel technologies have an overlooked à ¢à  à  option valueà ¢à  à  given fuel and carbon price uncertainty. Stochastic optimisation estimates the company option value of keeping open the choice between nuclear and gas technologies. This option value decreases sharply as the correlation between electricity, gas, and carbon prices rises, casting doubt on whether private investorsà ¢à  à  fuel-mix diversification incentives in electricity markets are aligned with the social value of a diverse fuel-mix

Market and Economic Modelling of the Intelligent Grid: End of Year Report 2009

The overall goal of Project 2 has been to provide a comprehensive understanding of the impacts of distributed energy (DG) on the Australian Electricity System. The research team at the UQ Energy Economics and Management Group (EEMG) has constructed a variety of sophisticated models to analyse the various impacts of significant increases in DG. These models stress that the spatial configuration of the grid really matters - this has tended to be neglected in economic discussions of the costs of DG relative to conventional, centralized power generation. The modelling also makes it clear that efficient storage systems will often be critical in solving transient stability problems on the grid as we move to the greater provision of renewable DG. We show that DG can help to defer of transmission investments in certain conditions. The existing grid structure was constructed with different priorities in mind and we show that its replacement can come at a prohibitive cost unless the capability of the local grid to accommodate DG is assessed very carefully.Distributed Generation. Energy Economics, Electricity Markets, Renewable Energy

Estimating the Value of Water in Alternative Uses

Many public and private decisions regarding water use, allocation, and management require estimation of water's value in alternative uses. This paper discusses economic concepts essential in valuing water, outlines and compares market and nonmarket based approaches used to estimate water values, and reviews the application of these methodologies for valuing water in instream, irrigation, municipal and industrial uses in the western United States

The Private and Public Economics of Renewable Electricity Generation

Generating electricity from renewable sources is more expensive than conventional approaches, but reduces pollution externalities. Analyzing the tradeoff is much more challenging than often presumed, because the value of electricity is extremely dependent on the time and location at which it is produced, which is not very controllable with some renewables, such as wind and solar. Likewise, the pollution benefits from renewable generation depend on what type of generation it displaces, which also depends on time and location. Without incorporating these factors, cost-benefit analyses of alternatives are likely to be misleading. However, other common arguments for subsidizing renewable power – green jobs, energy security and driving down fossil energy prices – are unlikely to substantially alter the analysis. The role of intellectual property spillovers is a strong argument for subsidizing energy science research, but less persuasive as an enhancement to the value of installing current renewable energy technologies.

Identification of Options and Policy Instruments for the Internalisation of External Costs of Electricity Generation. Dissemination of External Costs of Electricity Supply Making Electricity External Costs Known to Policy-Makers MAXIMA

In the present paper, after reviewing the results of the ExternE project and its follow-up stages in the estimation of the external costs of electricity production, we look at the policy instruments for the internalisation of such costs. Emphasis is given to subsidies, such as feed-in tariffs, competitive bidding processes and tradable green certificates to stimulate the use of renewables in the production of electricity. When policy-makers are asked to choose the instrument(s) to internalise the externalities in the electricity production, they have to find a solution that gives the best outcome in terms of efficiency, cost minimisation, impact on the job market, security of energy supply, equity of the instrument, technological innovation, certainty of the level of the internalisation, and feasibility. The choice of the instrument will require some trade-offs among these criteria. Conjoint choice analysis can help in investigating how stakeholders and policy makers trade off the criteria when choosing a policy for the internalisation of the externalities. In this paper we present the first results of a questionnaire that employs conjoint choice questions to find out how policy makers and stakeholders of the electricity market trade off some socio-economic aspects in the selection of the policy instruments for the internalisation of the externalities. The results of this first set of interviews will be useful for further research.Policy instruments, ExternE, External costs, Electricity, Conjoint choice analysis

Market Design for Generation Adequacy: Healing Causes rather than Symptoms

Keywords JEL Classification This paper argues that electricity market reform – particularly the need for complementary mechanisms to remunerate capacity – need to be analysed in the light of the local regulatory and institutional environment. If there is a lack of investment, the priority should be to identify the roots of the problem. The lack of demand side response, short-term reliability management procedures and uncompetitive ancillary services procurement often undermine market reflective scarcity pricing and distort long-term investment incentives. The introduction of a capacity mechanism should come as an optional supplement to wholesale and ancillary markets improvements. Priority reforms should focus on encouraging demand side responsiveness and reducing scarcity price distortions introduced by balancing and congestion management through better dialog between network engineers and market operators. electricity market, generation adequacy, market design, capacity mechanis

Insufficient Incentives for Investment in Electricity Generation

In theory, competitive electricity markets can provide incentives for efficient investment in generating capacity. We show that if consumers and investors are risk averse, investment is efficient only if investors in generating capacity can sign long-term contracts with consumers. Otherwise the uncovered price risk increases financing costs, reduces equilibrium investment levels, distorts technology choice towards less capital-intensive generation and reduces consumer utility. We observe insufficient levels of long-term contracts in existing markets, possibly because retail companies are not credible counter-parties if their final customer can switch easily. With consumer franchise, retailers can sign long-term contracts, but this solution comes at the expense of the idea of retail competition. Alternative capacity mechanisms to stimulate investment are discussed