Abstract
To evaluate an investment project in the competitive electricity market, there are several key factors that affects the project's value: the present value that the project could bring to investor, the possible future course of actions that investor has and the project's management flexibility. The traditional Net Present Value (NPV) criteria has the ability to capture the present value of the project's future cash flow, but it fails to assess the value brought by market uncertainty and management flexibility. By contrast with NPV, the Real Options Approach (ROA) method has the advantage to combining the uncertainty and flexibility in evaluation process. In this paper, a framework for using ROA to evaluate the generation investment opportunity has been proposed. By given a detailed case study, the proposed framework is compared with NPV and showing a different results.
| Original language | English |
|---|---|
| Title of host publication | 2006 IEEE Power Engineering Society General Meeting, PES |
| Publication status | Published - 2006 |
| Externally published | Yes |
| Event | IEEE Power and Energy Society General Meeting 2006 - Montreal, QC, Canada Duration: 18 Jun 2006 → 22 Jun 2006 |
Conference
| Conference | IEEE Power and Energy Society General Meeting 2006 |
|---|---|
| Country | Canada |
| City | Montreal, QC |
| Period | 18/06/06 → 22/06/06 |
Keywords
- Binomial tree and market deregulation
- Black Scholes model
- Investment evaluation
- NPV
- ROA
Cite this
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Power generation investment opportunities evaluation : A comparison between net present value and real options approach. / Zhe, Lu; Liebman, Ariel; Zhao, Yang Dong.
2006 IEEE Power Engineering Society General Meeting, PES. 2006. 1709400.Research output: Chapter in Book/Report/Conference proceeding › Conference Paper › Research › peer-review
TY - GEN
T1 - Power generation investment opportunities evaluation
T2 - A comparison between net present value and real options approach
AU - Zhe, Lu
AU - Liebman, Ariel
AU - Zhao, Yang Dong
PY - 2006
Y1 - 2006
N2 - To evaluate an investment project in the competitive electricity market, there are several key factors that affects the project's value: the present value that the project could bring to investor, the possible future course of actions that investor has and the project's management flexibility. The traditional Net Present Value (NPV) criteria has the ability to capture the present value of the project's future cash flow, but it fails to assess the value brought by market uncertainty and management flexibility. By contrast with NPV, the Real Options Approach (ROA) method has the advantage to combining the uncertainty and flexibility in evaluation process. In this paper, a framework for using ROA to evaluate the generation investment opportunity has been proposed. By given a detailed case study, the proposed framework is compared with NPV and showing a different results.
AB - To evaluate an investment project in the competitive electricity market, there are several key factors that affects the project's value: the present value that the project could bring to investor, the possible future course of actions that investor has and the project's management flexibility. The traditional Net Present Value (NPV) criteria has the ability to capture the present value of the project's future cash flow, but it fails to assess the value brought by market uncertainty and management flexibility. By contrast with NPV, the Real Options Approach (ROA) method has the advantage to combining the uncertainty and flexibility in evaluation process. In this paper, a framework for using ROA to evaluate the generation investment opportunity has been proposed. By given a detailed case study, the proposed framework is compared with NPV and showing a different results.
KW - Binomial tree and market deregulation
KW - Black Scholes model
KW - Investment evaluation
KW - NPV
KW - ROA
UR - http://www.scopus.com/inward/record.url?scp=35348895991&partnerID=8YFLogxK
M3 - Conference Paper
SN - 1424404932
SN - 9781424404933
BT - 2006 IEEE Power Engineering Society General Meeting, PES
ER -