Overview of transmission expansion planning using real options analysis

Kory Hedman, Feng Gao, Gerald B. Sheblé

Research output: Chapter in Book/Report/Conference proceedingConference contribution

22 Citations (Scopus)

Abstract

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.

Original languageEnglish (US)
Title of host publicationProceedings of the 37th Annual North American Power Symposium, 2005
Pages497-502
Number of pages6
Volume2005
DOIs
StatePublished - 2005
Externally publishedYes
Event37th Annual North American Power Symposium, 2005 - Ames, IA, United States
Duration: Oct 23 2005Oct 25 2005

Other

Other37th Annual North American Power Symposium, 2005
CountryUnited States
CityAmes, IA
Period10/23/0510/25/05

Fingerprint

Planning
Electric industry
Deregulation
Decision making
Costs
Monte Carlo simulation

Keywords

  • Binomial trees
  • Decision making
  • Monte-Carlo simulations
  • Multinomial trees
  • Power systems economics
  • Real options analysis
  • Transmission company (TRANSCO)
  • Transmission expansion planning

ASJC Scopus subject areas

  • Engineering(all)

Cite this

Hedman, K., Gao, F., & Sheblé, G. B. (2005). Overview of transmission expansion planning using real options analysis. In Proceedings of the 37th Annual North American Power Symposium, 2005 (Vol. 2005, pp. 497-502). [1560573] https://doi.org/10.1109/NAPS.2005.1560573

Overview of transmission expansion planning using real options analysis. / Hedman, Kory; Gao, Feng; Sheblé, Gerald B.

Proceedings of the 37th Annual North American Power Symposium, 2005. Vol. 2005 2005. p. 497-502 1560573.

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Hedman, K, Gao, F & Sheblé, GB 2005, Overview of transmission expansion planning using real options analysis. in Proceedings of the 37th Annual North American Power Symposium, 2005. vol. 2005, 1560573, pp. 497-502, 37th Annual North American Power Symposium, 2005, Ames, IA, United States, 10/23/05. https://doi.org/10.1109/NAPS.2005.1560573
Hedman K, Gao F, Sheblé GB. Overview of transmission expansion planning using real options analysis. In Proceedings of the 37th Annual North American Power Symposium, 2005. Vol. 2005. 2005. p. 497-502. 1560573 https://doi.org/10.1109/NAPS.2005.1560573
Hedman, Kory ; Gao, Feng ; Sheblé, Gerald B. / Overview of transmission expansion planning using real options analysis. Proceedings of the 37th Annual North American Power Symposium, 2005. Vol. 2005 2005. pp. 497-502
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