What Is It Worth? Application of Real Options Theory to the Valuation of Generation Assets
- By Julia Frayer
- Published 12/13/2007
- Valuation
- Unrated
Julia Frayer
Julia Frayer directs quantitative analysis and finance projects at London Economics International LLC, Cambridge, Massachusetts. In her role as managing consultant, she has led numerous projects on valuation of generation assets, and applied real options framework in several engagements. She has extensively modeled complex lease transactions involving network assets around the world. She is also an expert on strategic bidding and market power issues in wholesale electricity markets.
View all articles by Julia FrayerAn analysis of two generation assets in a regional market in the Northeast demonstrates how a real options-based valuation framework uncovers and quantifies the value of efficient plant operation in the face of volatile electricity market prices. The analysis shows that a peaking gas-fired facility may be more valuable than a mid-merit coal-fired plant, even though traditional methodologies would favor the coal-fired asset given its lower marginal cost.
