Monte Carlo Valuation of natural gas investments

This paper deals with the valuation of energy assets related to natural gas. In particular, we evaluate a baseload Natural Gas Combined Cycle (NGCC) power plant and an ancillary instalation, namely a Liquefied Natural Gas (LNG) facility, in a realistic setting; specifically, these investments enjoy a long useful life but require some non-negligible time to build. Then we focus on the valuation of several investment options again in a realistic setting. These include the option to invest in the power plant when there is uncertainty concerning the initial outlay, or the option's time to maturity, or the cost of CO2 emission permits, or when there is a chance to double the plant size in the future. Our model comprises three sources of risk. We consider uncertain gas prices with regard to both the current level and the long-run equilibrium level; the current electricity price is also uncertain. They all are assumed to show mean reversion. The two-factor model for natural gas price is calibrated using data from NYMEX NG futures contracts. Also, we calibrate the one-factor model for electricity price using data from the Spanish wholesale electricity market, respectively. Then we use the estimated parameter values alongside actual physical parameters from a case study to value natural gas plants. Finally, the calibrated parameters are also used in a Monte Carlo simulation framework to evaluate several American-type options to invest in these energy assets. We accomplish this by following the least squares MC approach.real options, power plants, stochastic revenues and cost, CO2 allowances, LNG

Optimal Abandonment of Coal-Fired Stations in the EU

Carbon-fired power plants could face some difficulties in a carbon-constrained world. The traditional advantage of coal as a cheaper fuel may decrease in the future if CO2 allowance prices start to increase. This paper seeks to answer empirically the most drastic question that an operating coal-fired power plant may ask itself: under what conditions would it be optimal to abandon the plant and obtain its salvage value? We try to assess this question from a financial viewpoint following a real option approach at firm level so as to attract the interest of utilities and the broader investment community. We consider the specific case of a coal-fired power plant that operates under restrictions on carbon dioxide emissions in an electricity market where gas-fired plants are considered as marginal units. We also consider three sources of uncertainty or stochastic variables: the coal price, the gas price and the emission allowance price. These parameters are derived from future markets and are used in a three-dimensional binomial lattice to assess the value of the option to abandon. Our results (and sensitivity analysis) show the conditions that have to be met for the abandonment option to be exercised. This option to abandon coalfired plants is, however, hardly likely to be exercised if plants can operate as peaking plants. However, the decision may go differently in different circumstances, such as high CO2 allowance prices, very low volatility of allowance price or a decrease in the price of gas. The decision is also influenced by the remaining lifetime of the plant and its thermal efficiency. In any case the price of CO2 will work to bring forward the decision to abandon in older and less efficient coal-fired plants, which are less likely to be retrofitted in the future.power plants, coal, natural gas, emission allowances, futures markets, stochastic processes, abandonment, real options

Optimal Investment in Energy Efficiency under Uncertainty

This paper deals with the optimal time to invest in an energy efficiency improvement. There is a broad consensus that such investments quickly pay for themselves in lower energy bills and spared emission allowances. However, investments that at first glance seem worthwhile are frequently not undertaken. Our aim is to shed some light on this issue. In particular, we try to assess these projects from a financial point of view so as to attract sufficient interest from the investment community. We consider the specific case of a firm or utility already in place that consumes huge amounts of coal and operates under restrictions on carbon dioxide emissions. In order to reduce both coal and carbon costs the firm may undertake an investment to enhance energy efficiency. We consider three sources of uncertainty: the fuel commodity price, the emission allowance price, and the overall investment cost. The parameters of the coal price process and the carbon price process are estimated from observed futures prices. The numerical parameter values are then used in a three-dimensional binomial lattice to assess the value of the option to invest. As usual, maximising this value involves determining the optimal exercise time. Thus we compute the trigger investment cost, i.e. the threshold level below which immediate investment would be optimal. A sensitivity analysis is also undertaken. Our results go some way towards explaining the so-called energy efficiency paradox.Energy efficiency, Real options

Valuing Flexibility: The case of an Integrated Gasification Combined Cycle Power Plant

In this paper we analyze the valuation of options stemming from the flexibility in an Integrated Gasification Combined Cycle (IGCC) Power Plant. First we use as a base case the opportunity to invest in a Natural Gas Combined Cycle (NGCC) Power Plant, deriving the optimal investment rule as a function of fuel price and the remaining life of the right to invest. Additionally, the analytical solution for a perpetual option is obtained. Second, the valuation of an operating IGCC Power Plant is studied, with switching costs between states and a choice of the best operation mode. The valuation of this plant serves as a base to obtain the value of the option to delay an investment of this type. Finally, we derive the value of an opportunity to invest either in a NGCC or IGCC Power Plant, that is, to choose between an inflexible and a flexible technology, respectively. Numerical computations involve the use of one- and two-dimensional binomial lattices that support a mean-reverting process for the fuel prices. Basic parameter values refer to an actual IGCC power plant currently in operation.real options, power plants, flexibility, stochastic costs

Income risk of EU coal-fired power plants after Kyoto

Coal-fired power plants may enjoy a significant advantage relative to gas plants in terms of cheaper fuel cost. Still, this advantage may erode or even turn into disadvantage depending on CO2 emission allowance price. This price will presumably rise in both the Kyoto Protocol commitment period (2008-2012) and the first post-Kyoto years. Thus, in a carbon-constrained environment, coal plants face financial risks arising in their profit margins, which in turn hinge on their so-called "clean dark spread". These risks are further reinforced when the price of the output electricity is determined by natural gas-fired plants' marginal costs, which differ from coal plants' costs. We aim to assess the risks in coal plants' margins. We adopt parameter values estimated from empirical data. These in turn are derived from natural gas and electricity markets alongside the EU ETS market where emission allowances are traded. Monte Carlo simulation allows to compute the expected value and risk profile of coal-based electricity generation. We focus on the clean dark spread in both time periods under different future scenarios in the allowance market. Specifically, bottom 5% and 10% percentiles are derived. According to our results, certain future paths of the allowance price may impose significant risks on the clean dark spread obtained by coal plants.clean spark spread, clean dark spread, EU Emissions Trading Scheme, Monte Carlo

Universal quantum computation with the Orbital Angular Momentum of a single photon

We prove that a single photon with quantum data encoded in its orbital angular momentum can be manipulated with simple optical elements to provide any desired quantum computation. We will show how to build any quantum unitary operator using beamsplitters, phase shifters, holograms and an extraction gate based on quantum interrogation. The advantages and challenges of these approach are then discussed, in particular the problem of the readout of the results.Comment: First version. Comments welcom

Nonlinear interfaces: intrinsically nonparaxial regimes and effects

The behaviour of optical solitons at planar nonlinear boundaries is a problem rich in intrinsically nonparaxial regimes that cannot be fully addressed by theories based on the nonlinear Schrödinger equation. For instance, large propagation angles are typically involved in external refraction at interfaces. Using a recently proposed generalized Snell's law for Helmholtz solitons, we analyse two such effects: nonlinear external refraction and total internal reflection at interfaces where internal and external refraction, respectively, would be found in the absence of nonlinearity. The solutions obtained from the full numerical integration of the nonlinear Helmholtz equation show excellent agreement with the theoretical predictions

EVALUATION OF THE ANTIOXIDANT ACTIVITY OF THE FLAVONOIDS ISOLATED FROM HELIOTROPIUM SINUATUM RESIN USING ORACFL, DPPH AND ESR METHODOLOGIES

Indexación: Web of Science; Scielo.The antioxidant capacity has been determined for a number of flavonoid compounds from Heliotropium sinuatum, a plant that grows in arid areas in the north of Chile. The methodologies used were: ORAC(FL) (oxygen radical absorbance capacity - fluorescein), DPPH (2,2-diphenyl-2-picrylhydrazyl) bleaching and electron spin resonance (ESR). These compounds were studied in homogeneous and heterogeneous media. The results showed that the 7-o-methyleriodictiol and 3-o-methylisorhamnetin are those with the highest antioxidant capacity.http://ref.scielo.org/m82cz

Helmholtz bright and boundary solitons

We report, for the first time, exact analytical boundary solitons of a generalized cubic-quintic Non-Linear Helmholtz (NLH) equation. These solutions have a linked-plateau topology that is distinct from conventional dark soliton solutions; their amplitude and intensity distributions are spatially delocalized and connect regions of finite and zero wave-field disturbances (suggesting also the classification as 'edge solitons'). Extensive numerical simulations compare the stability properties of recently-reported Helmholtz bright solitons, for this type of polynomial non-linearity, to those of the new boundary solitons. The latter are found to possess a remarkable stability characteristic, exhibiting robustness against perturbations that would otherwise lead to the destabilizing of their bright-soliton counterpart