Investment in Energy Assets Under Uncertainty

Numerical methods in theory and practice

  • L.M. Abadie
  • J.M. Chamorro

Part of the Lecture Notes in Energy book series (LNEN, volume 21)

Table of contents

  1. Front Matter
    Pages i-xv
  2. Investment Under Certainty

    1. Front Matter
      Pages 1-1
    2. L. M. Abadie, J. M. Chamorro
      Pages 3-19
  3. Investment Under Uncertainty

    1. Front Matter
      Pages 21-21
    2. L. M. Abadie, J. M. Chamorro
      Pages 23-44
    3. L. M. Abadie, J. M. Chamorro
      Pages 45-76
    4. L. M. Abadie, J. M. Chamorro
      Pages 77-102
    5. L. M. Abadie, J. M. Chamorro
      Pages 103-112
    6. L. M. Abadie, J. M. Chamorro
      Pages 113-133
  4. Investments in the Energy Sector

    1. Front Matter
      Pages 135-135
    2. L. M. Abadie, J. M. Chamorro
      Pages 137-150
    3. L. M. Abadie, J. M. Chamorro
      Pages 151-158
    4. L. M. Abadie, J. M. Chamorro
      Pages 159-165
    5. L. M. Abadie, J. M. Chamorro
      Pages 167-176
    6. L. M. Abadie, J. M. Chamorro
      Pages 177-183
  5. Back Matter
    Pages 185-187

About this book

Introduction

This book aims to provide a rigorous yet pragmatic approach to the valuation and management of investments in the energy sector. Time and uncertainty pervade most if not all issues relevant to energy assets. They run from the early stage of prototype and demonstration to the ultimate abandonment and decommissioning. Risk in particular appears in several areas; thus, one can distinguish technical risk from financial risk. Furthermore, the extent to which one can react to them is different (just think of price risk and regulation risk). Markets in general, and financial markets in particular, regularly put a price on a number of assets which differ in their return/risk characteristics. And academia has developed sound financial principles for valuation purposes in a number of contexts. Nonetheless, the physical characteristics of the assets involved also play a key role in their valuation if only because of the restrictions that they entail.

There are some instances in which the practitioner/researcher is able to come up with an analytical solution to the valuation problem. Typically, however, these instances are limited because of their relying on stylized facts or idealized frameworks. Unfortunately, many relevant instances lack analytical solutions, so one must resort to numerical methods. The book clearly explains how to implement them in a meaningful way. Their usefulness is further enhanced when numerical estimates of relevant parameters are derived from actual market prices (as long as these are available and reliable).


The book starts from the basics of valuation in a dynamic, certain context. The second part then considers uncertainty and introduces a number of useful results and tools to grapple effectively with it. The last part applies these tools to the valuation of energy assets in a sequential manner, i.e. by considering one, two and three sources of risk. The last chapter provides examples of joint optimal management and value maximization in conventional power plants.

Keywords

Binomial and Trinomial Lattices Coal-Fired and Natural Gas-Fired Power Plant Discrete and Continuous Compounding Investment in Energy Assets Under Uncertainty Random Asset and Portfolio retur

Authors and affiliations

  • L.M. Abadie
    • 1
  • J.M. Chamorro
    • 2
  1. 1.Basque Centre for Climate ChangeUniversity of the Basque Country UPV/EHUBilbaoSpain
  2. 2.Dpt. Financial Economics IIUniversity of the Basque Country UPV/EHUBilbaoSpain

Bibliographic information

  • DOI https://doi.org/10.1007/978-1-4471-5592-8
  • Copyright Information Springer-Verlag London 2013
  • Publisher Name Springer, London
  • eBook Packages Energy
  • Print ISBN 978-1-4471-5591-1
  • Online ISBN 978-1-4471-5592-8
  • Series Print ISSN 2195-1284
  • Series Online ISSN 2195-1292
  • About this book
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