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Abstract

As the electric utility industry becomes more competitive, the question of how to value generation assets becomes critical. This problem is typically approached by defining the generator in terms of its efficiency (heat rate) in converting fuel to electricity. Based on this rating, the valuation is performed by modeling the generator as a spread option between the price of the fuel used and the price of electricity [44]. The payoff from such an option is given by
$$C{F_k} = \max \left\{ {{\rm P}_k^e - C\left( {{\rm P}_k^f} \right),0} \right\}$$
where \({\rm P}_k^e\) is the price of electricity and C is the cost marginal cost of production as a function of the fuel price \({\rm P}_k^f\).

Keywords

Cash Flow Lookup Table Electricity Price Fuel Price Unit Commitment 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Science+Business Media New York 2001

Authors and Affiliations

  • Petter L. Skantze
    • 1
  • Marija D. Ilic
    • 2
  1. 1.Caminus CorporationUSA
  2. 2.Massachusetts Institute of TechnologyUSA

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