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Variable capacity utilization, ambient temperature shocks and generation asset valuation
journal contribution
posted on 2023-05-17, 16:31 authored by Tseng, CL, Zhu, W, Dmitriev, AThis 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.
History
Publication title
Energy EconomicsVolume
31Issue
6Pagination
888-896ISSN
0140-9883Department/School
TSBEPublisher
Elsevier Science BvPlace of publication
Po Box 211, Amsterdam, Netherlands, 1000 AeRights statement
Copyright 2009 Elsevier B.V.Repository Status
- Restricted