Flexibility and technology choice in gas fired power plant investments

Flexibility and Technology Choice in Gas Fired Power Plant Investments

The value of a gas fired power plant depends on the spark spread, defined as the difference between the unit price of electricity and the cost of gas. We model the spark spread using two-factor model, allowing mean-reversion in short-term variations and uncertainty in the equilibrium price to which prices revert. We analyze two types of gas plants. The first type is a base load plant, generatin...

Gas Fired Power Plants: Investment Timing, Operating Flexibility and Abandonment

We analyze investments in gas fired power plants under stochastic electricity and gas prices. A simple but realistic two-factor model is used for price processes, enabling analysis of the value of operating flexibility, the opportunity to abandon the capital equipment, as well as finding thresholds for energy prices for which it is optimal to enter into the investment. Our case study, using rea...

The natural hedge of a gas-fired power plant

Electricity industries worldwide have been restructured in order to introduce competition.As a result, decisionmakers are exposed to volatile electricity prices, which are positively correlated with those of natural gas in markets with price-setting gas-fired power plants. Consequently, gas-fired plants are said to enjoy a “natural hedge.” We explore the properties of such a built-in hedge for ...

Future carbon regulations and current investments in alternative coal-fired power plant technologies

We analyze how uncertain future US carbon regulations shape the current choice of the type of power plant to build. Our focus is on two coal-fired technologies, pulverized coal (PC) and integrated coal gasification combined cycle technology (IGCC). The PC technology is cheapest—assuming there is no need to control carbon emissions. The IGCC technology may be cheaper if carbon must be captured. ...

Valuing a Medium-Scale Gas Fired Power Plant with Capacity Expansion Options Under a Competitive Environment