Project valuation and power portfolio management in a competitive market

TitleProject valuation and power portfolio management in a competitive market
Publication TypeJournal Article
Year of Publication2000
AuthorsShams N Siddiqui
JournalIEEE Transactions on Power Systems
Date Published02/2000
Keywordsactive electricity market, competitive environment, competitive market, costing, decision analysis, deregulated competitive electricity market, electric utility, electricity options pricing, electricity supply industry, fluid electricity market, independent power producer, integrated resource planning, market risks exposure, options pricing theory, power marketers, power portfolio management, power system economics, project management, project valuation, risk management, risky projects, texas, us electric utility industry deregulation

Deregulation in the US electric utility industry has lead to the entry of many new market participants, particularly power marketers, which in turn has lead to a much more active and fluid electricity market. With the advent of new market instruments that can be used to hedge one's exposure to market risks, power portfolio management takes on new meaning and new tools and techniques can be used to manage risk. This paper concentrates on long-term project valuation and power portfolio management issues in a competitive environment. It describes a method of valuing risky projects based on options pricing theory and decision analysis and its implementation to long-term power portfolio management or integrated resource planning for an electric utility in Texas. The author believes that the methodology described in this paper has wide application in the deregulated competitive electricity market from integrated resource planning for utilities facing competition and valuing a power plant investment by an independent power producer to pricing electricity options.