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Real options valuation applied to transmission expansion planning

S. Lumbreras, D.W. Bunn, A. Ramos, M. Chronopoulos

Transmission expansion planning (TEP) is a complex problem where building a new line involves a long permitting process of around 10 years. Therefore, transmission expansion must anticipate the evolution of uncertainties, particularly those derived from changes in the capacity and location of new generating facilities. As it is not possible to request permits for all possible lines, priorities must be established. We develop a formulation to use real options valuation to evaluate the potential benefit of candidate lines and thereby identify priority projects. We present a feasible representation of optionality in TEP projects and propose a tractable evaluation of option value. The proposed technique identifies the candidate transmission lines with the highest potential, as well as their main value drivers. This is implemented in a realistic large-scale case study based on the Spanish system.

Palabras clave: Power transmission; Circuit optimization; Mathematical programming

Quantitative Finance. Volumen: 16 Numero: 2 Páginas: 231-246

Índice de impacto JCR y cuartil Scopus: 0.960 - Q1 (2016); 1.170 - Q1 (2017).

Referencia DOI: DOI icon 10.1080/14697688.2015.1114362    

Publicado en papel: Febrero 2016. Publicado on-line: Febrero 2016.

    Líneas de investigación:
  • *Análisis de estrategia a largo plazo

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