Yiju Ma, Kevin Swandi, Archie Chapman, Gregor Verbic
arXiv 21 Oct 2019 · Econometrics · publishedEnergy (2019) · 3 citations (OpenAlex)
arXiv:1910.09132 · PDF · DOI · OpenAlex · Extracted main text
Strategic valuation of efficient and well-timed network investments under uncertain electricity market environment has become increasingly challenging, because there generally exist multiple interacting options in these investments, and failing to systematically consider these options can lead to decisions that undervalue the investment. In our work, a real options valuation (ROV) framework is proposed to determine the optimal strategy for executing multiple interacting options within a distribution network investment, to mitigate the risk of financial losses in the presence of future uncertainties. To demonstrate the characteristics of the proposed framework, we determine the optimal strategy to economically justify the investment in residential PV-battery systems for additional grid supply during peak demand periods. The options to defer, and then expand, are considered as multi-stage compound options, since the option to expand is a subsequent option of the former. These options are valued via the least squares Monte Carlo method, incorporating uncertainty over growing power demand, varying diesel fuel price, and the declining cost of PV-battery technology as random variables. Finally, a sensitivity analysis is performed to demonstrate how the proposed framework responds to uncertain events. The proposed framework shows that executing the interacting options at the optimal timing increases the investment value.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | G. Blanco, F. Olsina, F. Garces, C. Rehtanz, Real option valuation o… (2011) 1389–1398 | 0.737 | 3 | 2 | 100% |
| 2 | W. El-Khattam, Y. Hegazy, M. Salama, An integrated distributed gener… (2005) 1158–1165 | 0.737 | 3 | 2 | 100% |
| 3 | J. Schachter, P. Mancarella, A critical review of real options think… (2016) 261–271 | 0.737 | 3 | 2 | 100% |
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| 6 | T. K. Boomsma, N. Meade, S.-E. Fleten, Renewable energy investments… (2012) 225–237 | 0.511 | 2 | 1 | 100% |
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| 9 | D. Eryilmaz, F. R. Homans, How does uncertainty in renewable energy… (2016) 64–71 | 0.511 | 2 | 1 | 100% |
| 10 | K. Linnerud, A. M. Andersson, S.-E. Fleten, Investment timing under… (2014) 154–164 | 0.511 | 2 | 1 | 100% |
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