Electric Power Plant Valuation Based on Day-Ahead Spark Spreads

Chung-Hsiao Wang and K. Min

The Engineering Economist, 2013, vol. 58, issue 3, 157-178

Abstract: With recent regulatory changes in the electric power industry toward a competitive market, there have been significant increases in sales and purchases of merchant power plants. To support utilities’ decisions on such transactions, we develop an option-based valuation model that better reflects the current practices of plant operations in utilities. What distinguishes our approach from the extant literature is that, rather than conventionally assuming that theoretically optimal decisions can or will be followed through by practitioners, our model explicitly incorporates the actual practices in the utility operations areas such as unit commitments and startups.

Date: 2013
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DOI: 10.1080/0013791X.2013.788686

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