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Real options valuation applied to transmission expansion planning

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

Quantitative Finance Vol. 16, nº. 2, pp. 231 - 246

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

Índice de impacto JCR y cuartil WoS: 0,960 - Q2 (2016); 1,300 - Q3 (2022)

Referencia DOI: DOI icon

Publicado en papel: Febrero 2016.

Publicado on-line: Febrero 2016.

S. Lumbreras, D.W. Bunn, A. Ramos, M. Chronopoulos, Real options valuation applied to transmission expansion planning. Quantitative Finance. Vol. 16, nº. 2, pp. 231 - 246, Febrero 2016. [Online: Febrero 2016]

    Líneas de investigación:
  • *Técnicas de cálculo paralelo y distribuido aplicado a la solución de problemas de programación matemática
  • *Análisis de Estrategia a Largo Plazo

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