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Variable capacity utilization, ambient temperature shocks and generation asset valuation
Citation
Tseng, CL and Zhu, W and Dmitriev, A, Variable capacity utilization, ambient temperature shocks and generation asset valuation, Energy Economics, 31, (6) pp. 888-896. ISSN 0140-9883 (2009) [Refereed Article]
Copyright Statement
Copyright 2009 Elsevier B.V.
DOI: doi:10.1016/j.eneco.2009.05.013
Abstract
This paper discusses generation asset valuation in a framework where capital utilization decisions are endogenous. We use real options approach for valuation of natural gas fueled turbines. Capital utilization choices that we explore include turning on/off the unit, operating the unit at increased firing temperatures (overfiring), and conducting preventive maintenance. Overfiring provides capacity enhancement which comes at the expense of reduced maintenance interval and increased costs of part replacement. We consider the costs and benefits of overfiring in attempt to maximize the asset value by optimally exercising the overfire option. In addition to stochastic processes governing prices, we incorporate an exogenous productivity shock: ambient temperature. We consider how variation in ambient temperature affects the asset value through its effect on gas turbine's productivity.
Item Details
Item Type: | Refereed Article |
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Keywords: | Electricity generation asset valuation, overfire option, price uncertainty |
Research Division: | Economics |
Research Group: | Applied economics |
Research Field: | Financial economics |
Objective Division: | Economic Framework |
Objective Group: | Macroeconomics |
Objective Field: | Fiscal policy |
UTAS Author: | Dmitriev, A (Dr Alexandre Dmitriev) |
ID Code: | 83257 |
Year Published: | 2009 |
Web of Science® Times Cited: | 2 |
Deposited By: | Economics and Finance |
Deposited On: | 2013-03-06 |
Last Modified: | 2017-12-06 |
Downloads: | 0 |
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