THERMAL GENERATION ASSET VALUATION PROBLEMS IN A COMPETITIVE MARKET

With deregulation in the electric power industry, traditionalapproaches for minimizing production costs have become unfit forthe present competitive environment. Owners of generationassets must now consider price uncertainty in solving unitcommitment problems for scheduling and operating their power plants.Operation flexibility of the generating assets, such as fuel switchingand overfire, becomes an important issue. Because in a competitive market withvolatile electricity prices, these flexibility may add significant values.On the other hand, operational constraints, such asramp and minimum uptime/downtime constraints, present physical limits forthe generating assets to flexibly react to rapid price changes, which havea negative effect on the asset value. Both of the operational flexibilityand operational constraints must be considered simultaneously so as toachieve optimal operation under uncertainty. This dissertation devotes tothis very important subject.Deregulation in the power industry allows new firms to freely enterthe generation markets. As a result, capacity expansion is no longerthe responsibility of local utility companies and has become a pureinvestment problem. Overestimating the value ofa power may result in stranded capital for a long time period.Therefore, to ensure a successful investment a fairvaluation method is essential. The generation asset valuationmust fully account for market uncertainty, which results in not onlyrisks but also opportunities. To minimize the risks, one must first havesound models for market uncertainties. In this research, we considernot only the uncertainties of electricity price and fuel price, butalso environment temperature because some characteristics of power plantsmay be sensitive to the temperature. To fully capitalize on profitableopportunities arising in the marketplace due to price spreads of different commodities,such as fuel and electricity, a real options approach is considered, in whichdifferent options are exercised at different but `optimal' timings.Overall, this research is expected to contribute a new methodology forfair generation valuation that accounts for multiple and interdependentuncertainties and complex physical constraints. The proposed approach canhelp operators achieving optimal operationand investors making appropriate investment decisions.In the long run, customers also benefit from the improved societal efficiency.