A Real Options Approach For Pricing Electricity Tolling Agreements
AbstractAn electricity tolling agreement (or, tolling contact) is a supply contract in which the buyer reserves the right to take the output of an underlying electricity generation asset by paying a predetermined premium to the asset owner. We propose a real options approach to value a tolling contract incorporating operational characteristics of the generation asset and contractual constraints. Dynamic programming and value function approximation by Monte Carlo based least-squares regression are employed to solve the valuation problem. The effects of different electricity price assumptions on the valuation of tolling contracts are examined through numerical examples.
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Bibliographic InfoArticle provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Information Technology and Decision Making.
Volume (Year): 05 (2006)
Issue (Month): 03 ()
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Web page: http://www.worldscinet.com/ijitdm/ijitdm.shtml
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- Chi-Keung Woo, Ira Horowitz, Brian Horii, Ren Orans, and Jay Zarnikau, 2012. "Blowing in the Wind: Vanishing Payoffs of a Tolling Agreement for Natural-gas-fired Generation of Electricity in Texas," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
- Fernandes, Bartolomeu & Cunha, Jorge & Ferreira, Paula, 2011. "The use of real options approach in energy sector investments," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(9), pages 4491-4497.
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