Research Interests
Operations Management and Analysis
Financial Engineering (Asset Valuation, Real Options), Risk Management
Project and Asset Management
Optimization
Published in: Operations Research, vol. 50, no. 2
Publication year: 1999
Co-author 1: Graydon Barz
In this paper we present a method for valuing a power plant over a short-term period using Monte Carlo simulation. The power plant valuation problem is formulated as a multi-stage stochastic problem. We assume there are hourly markets for both electricity and the fuel used by the generator, and their prices follow some Ito processes. At each hour, the power plant operator must decide to run or not to run the unit so as to maximize expected pro t. A certain lead time for commitment decision is necessary to start up a unit. The commitment decision, once made, is subject to physical constraints such as minimum uptime and downtime constraints. The generator's startup cost is also taken into account in our model. In this paper, the Monte Carlo method is employed not only in forward-moving simulation, but also backward-moving recursion of dynamic programming. We demonstrate through numerical tests how the physical constraints a ect a power plant value.
In this paper we present a method for valuing a power plant over a short-term period using Monte Carlo simulation. The power plant valuation problem is formulated as a multi-stage stochastic problem. We assume there are hourly markets for both electricity and the fuel used by the generator, and their prices follow some Ito processes. At each hour, the power plant operator must decide to run or not to run the unit so as to maximize expected pro t. A certain lead time for commitment decision is necessary to start up a unit. The commitment decision, once made, is subject to physical constraints such as minimum uptime and downtime constraints. The generator's startup cost is also taken into account in our model. In this paper, the Monte Carlo method is employed not only in forward-moving simulation, but also backward-moving recursion of dynamic programming. We demonstrate through numerical tests how the physical constraints a ect a power plant value.