Project valuation and power portfolio management in a competitive market

Publication Type

Journal Article

Date Published

02/2000

Abstract

Deregulation in the US electric utility industry has lead to the entry of many new market participants, particularly power marketers, which in turn has lead to a much more active and fluid electricity market. With the advent of new market instruments that can be used to hedge one's exposure to market risks, power portfolio management takes on new meaning and new tools and techniques can be used to manage risk. This paper concentrates on long-term project valuation and power portfolio management issues in a competitive environment. It describes a method of valuing risky projects based on options pricing theory and decision analysis and its implementation to long-term power portfolio management or integrated resource planning for an electric utility in Texas. The author believes that the methodology described in this paper has wide application in the deregulated competitive electricity market from integrated resource planning for utilities facing competition and valuing a power plant investment by an independent power producer to pricing electricity options.

Journal

IEEE Transactions on Power Systems

Volume

15

Year of Publication

2000
116

Issue

1

Pagination

116-121
Research Areas