Short-Term Generation Asset Valuation

In this paper we present a method for valuing a power plant over a short term period using Monte Carlo sim ulation The power plant valuation problem is formu lated 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 opera tor must decide to run or not to run the unit so as to maximize expected pro t A certain lead time for com mitment decision is necessary to start up a unit The commitment decision once made is subject to physi cal 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 dy namic programming We demonstrate through numer ical tests how the physical constraints a ect a power plant value