2 research outputs found
Optimal Strategies for Investment in Generation of Electric Energy through Real Options
The Brazilian electric sector has two market-environments for the energy supply: a regulated pool
(ACR), with 64 power distribution companies, and the free market (ACL), including free-consumers
and energy wholesalers. In the regulated market, the power generation competition is enforced via
energy auctions, where the winning generator has to sign long-term standard power purchase
agreements (PPA) simultaneously with all distributors at the bidding-price. In this work we use the
Real Options Theory to valuate new hydraulic generation assets, which will be traded in the new
energy auction. This approach models the uncertainties in setting up the cash flow for the investments
and incorporates some possible managerial flexibility associated with the decision taken along the
investment forecast. A real example is presented, in which we incorporated the flexibilities regarding
the waiting to invest in a new hydro power plant and an abandon option, representing the transfer of
concession rights. Since the project involves a multistage investment consisting of design, construction
and operation phases, it can be treated as a sequential compound option. A binomial approach was
elaborated to model this investment opportunity analysis
Optimal Strategies for Investment in Generation of Electric Energy through Real Options
The Brazilian electric sector has two market-environments for the energy supply: a regulated pool
(ACR), with 64 power distribution companies, and the free market (ACL), including free-consumers
and energy wholesalers. In the regulated market, the power generation competition is enforced via
energy auctions, where the winning generator has to sign long-term standard power purchase
agreements (PPA) simultaneously with all distributors at the bidding-price. In this work we use the
Real Options Theory to valuate new hydraulic generation assets, which will be traded in the new
energy auction. This approach models the uncertainties in setting up the cash flow for the investments
and incorporates some possible managerial flexibility associated with the decision taken along the
investment forecast. A real example is presented, in which we incorporated the flexibilities regarding
the waiting to invest in a new hydro power plant and an abandon option, representing the transfer of
concession rights. Since the project involves a multistage investment consisting of design, construction
and operation phases, it can be treated as a sequential compound option. A binomial approach was
elaborated to model this investment opportunity analysis