Valuation of power plants

Rune Ramsdal Ernstsen and Trine Krogh Boomsma

European Journal of Operational Research, 2018, vol. 266, issue 3, 1153-1174

Abstract: In this paper we develop continuous-time stochastic control models for valuation and operation of three stylised types of power plants in an electricity market: a renewable plant, a conventional plant and a storage plant. Examples of these types of power plants are respectively wind turbines, gas-fired generation units and hydroelectric facilities. We demonstrate how to derive analytical or quasi-analytical solutions in spite of many details in modeling. In particular, we model uncertainty in electricity prices and in production input/output when it is relevant for the technology considered. Input/output is assumed to follow a diffusion process, whereas the price process may include jumps. Our models account for special characteristics of the technologies, including a non-Normal distribution of wind speeds as well as start-up and shut-down costs of thermal units. We use our models to assess the impact of conjectured future market conditions such as increasing average price level, price volatility and correlation between renewable production and electricity prices.

Keywords: OR in energy; Electricity generation; Valuation; Stochastic control (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221717309657
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:266:y:2018:i:3:p:1153-1174

DOI: 10.1016/j.ejor.2017.10.052

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().