TY - GEN
T1 - Overview of transmission expansion planning using real options analysis
AU - Hedman, Kory W.
AU - Gao, Feng
AU - Sheblé, Gerald B.
PY - 2005
Y1 - 2005
N2 - Deregulation of the electric industry has opened the doors for competition and this has caused a significant difference in what information is needed to evaluate how much an transmission expansion investment is worth as well as the risk involved. The change comes from the fact that, in the past, the risk associated with regulated investments in transmission would be covered by the government and a project would be chosen based on minimum cost while meeting the requirements such as reliability, power flow, etc. Due to this change, there is a push for better ways to evaluate the worth and risk of transmission expansion investments. This paper discusses the method of Real Options Analysis and how it can be used to value transmission expansion investments. The paper also discusses the difference between this approach and other approaches. One key difference is that Real Options Analysis does not assume the decision making process is static like traditional methods do. Instead, it allows for these managerial options to be considered, expanded, abandoned, etc. Thus, by doing so, it provides a better estimate of the investment's worth. There are multiple Real Options methods from Black-Scholes to Monte-Carlo Simulation to Trees (Binomial, Trinomial, etc.) and more. This paper will discuss Monte-Carlo Simulation & Trees only.
AB - Deregulation of the electric industry has opened the doors for competition and this has caused a significant difference in what information is needed to evaluate how much an transmission expansion investment is worth as well as the risk involved. The change comes from the fact that, in the past, the risk associated with regulated investments in transmission would be covered by the government and a project would be chosen based on minimum cost while meeting the requirements such as reliability, power flow, etc. Due to this change, there is a push for better ways to evaluate the worth and risk of transmission expansion investments. This paper discusses the method of Real Options Analysis and how it can be used to value transmission expansion investments. The paper also discusses the difference between this approach and other approaches. One key difference is that Real Options Analysis does not assume the decision making process is static like traditional methods do. Instead, it allows for these managerial options to be considered, expanded, abandoned, etc. Thus, by doing so, it provides a better estimate of the investment's worth. There are multiple Real Options methods from Black-Scholes to Monte-Carlo Simulation to Trees (Binomial, Trinomial, etc.) and more. This paper will discuss Monte-Carlo Simulation & Trees only.
KW - Binomial trees
KW - Decision making
KW - Monte-Carlo simulations
KW - Multinomial trees
KW - Power systems economics
KW - Real options analysis
KW - Transmission company (TRANSCO)
KW - Transmission expansion planning
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UR - http://www.scopus.com/inward/citedby.url?scp=33845332357&partnerID=8YFLogxK
U2 - 10.1109/NAPS.2005.1560573
DO - 10.1109/NAPS.2005.1560573
M3 - Conference contribution
AN - SCOPUS:33845332357
SN - 0780392558
SN - 9780780392557
T3 - Proceedings of the 37th Annual North American Power Symposium, 2005
SP - 497
EP - 502
BT - Proceedings - Thirteenth International Symposium on Temporal Representation and Reasoning, TIME 2006
T2 - 37th Annual North American Power Symposium, 2005
Y2 - 23 October 2005 through 25 October 2005
ER -