Asset Valuations in the Power Sector
Accurate valuation methodologies for the energy industry. Asset valuation is a complex but vitally important task for any organization involved in the development,financing, investing, or
In this paper, we describe a model for power plant valuation that accounts for such important operating characteristics as minimum on- and off-times, ramp time, nonconstant heat rates, response rate and minimum electricity dispatch level. The power plant values and optimal operating policies are obtained by employing stochastic dynamic programming.
The valuation of power generation is based on the expected discounted value of cashflows over an infinite horizon. In this section, we describe the valuation of the three stylized generation technologies, assuming an exogenous discount rate r > 0. (The passage does not directly answer the question about 'how' power generation is valued, but it does provide the methodology used for valuation.)
We value renewable power plants along with conventional and storage power plants, considering their operational characteristics. We derive quasi-analytical solutions to the valuation problems. The electricity price is modeled as a jump-diffusion with mean reversion, and we account for a non-Normal distribution of renewable production.
In this paper, stochastic control models are used for valuation and operation of power plants. Specifically, three stylised types of power plants - a renewable plant, a conventional plant, and a storage plant - are considered: examples of these are respectively wind turbines, gas-fired generation units, and hydroelectric facilities.
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