This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Technology Choices for New Entrants in Liberalised Markets: The Value of Operating Flexibility and Contractual Arrangements

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Roques, F.A.

Additional information is available for the following registered author(s):

Abstract

New entrants in liberalised electricity markets which are not vertically integrated and do not operate a large and diversified portfolio of generation technologies are likely to favour technologies which offer the best prospects to manage fuel and electricity price risks through contractual arrangements and operating flexibility. Monte Carlo simulations of a discounted cash flow model of investment in combined cycle gas turbine (CCGT), coal and nuclear power plant are run to compare the impact of fuel and electricity price risks on these different technologies, as well as the value of operating flexibility and contractual hedges. In the absence of long-term fixed-price power purchase contracts, CCGT is the least risky option as its cash flow is “self-hedged” given the high correlation between electricity and gas prices observed in most markets. Moreover, the value associated with operating flexibility and arbitrage between gas and power market is greater for CCGT plant. This makes CCGT particularly attractive to new entrants.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.electricitypolicy.org.uk/pubs/wp/eprg0726.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Howard Cobb)
File Format: application/pdf
File Function: Working Paper Version
Download Restriction: no

Publisher Info
Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0759.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 24
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:cam:camdae:0759

Contact details of provider:
Web page: http://www.econ.cam.ac.uk/index.htm

For technical questions regarding this item, or to correct its listing, contact: (Howard Cobb).

Related research
Keywords: Fuel and electricity price risks; Monte-Carlo simulation; operating flexibility.;

Other versions of this item:

Find related papers by JEL classification:
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Geoffrey Rothwell, 2006. "A Real Options Approach to Evaluating New Nuclear Power Plants," The Energy Journal, International Association for Energy Economics, vol. 27(1), pages 37-54.
  2. Colpier, Ulrika Claeson & Cornland, Deborah, 2002. "The economics of the combined cycle gas turbine--an experience curve analysis," Energy Policy, Elsevier, vol. 30(4), pages 309-316, March. [Downloadable!] (restricted)
  3. David M. Newbery, 2008. "Climate Change Policy and Its Effect on Market Power in the Gas Market," Journal of the European Economic Association, MIT Press, vol. 6(4), pages 727-751, 06. [Downloadable!] (restricted)
    Other versions:
  4. Spinney, Peter J & Watkins, G Campbell, 1996. "Monte Carlo simulation techniques and electric utility resource decisions," Energy Policy, Elsevier, vol. 24(2), pages 155-163, February. [Downloadable!] (restricted)
  5. Gollier, Christian & Proult, David & Thais, Francoise & Walgenwitz, Gilles, 2005. "Choice of nuclear power investments under price uncertainty: Valuing modularity," Energy Economics, Elsevier, vol. 27(4), pages 667-685, July. [Downloadable!] (restricted)
    Other versions:
  6. Feretic, Danilo & Tomsic, Zeljko, 2005. "Probabilistic analysis of electrical energy costs comparing: production costs for gas, coal and nuclear power plants," Energy Policy, Elsevier, vol. 33(1), pages 5-13, January. [Downloadable!] (restricted)
  7. Roques, Fabien A. & Newbery, David M. & Nuttall, William J., 2008. "Fuel mix diversification incentives in liberalized electricity markets: A Mean-Variance Portfolio theory approach," Energy Economics, Elsevier, vol. 30(4), pages 1831-1849, July. [Downloadable!] (restricted)
  8. Roques, F.A. & Nuttall, W.J. & Newbery, D.M., 2006. "Using Probabilistic Analysis to Value Power Generation Investments Under Uncertainty," Cambridge Working Papers in Economics 0650, Faculty of Economics, University of Cambridge. [Downloadable!]
  9. Neuhoff, K. & von Hirschhausen, C., 2005. "Long-term vs. Short-term Contracts; A European perspective on natural gas," Cambridge Working Papers in Economics 0539, Faculty of Economics, University of Cambridge. [Downloadable!]
  10. Awerbuch, Shimon, 1995. "Market-based IRP: It's easy!!!," The Electricity Journal, Elsevier, vol. 8(3), pages 50-67, April. [Downloadable!] (restricted)
  11. Richard Green, 2007. "Carbon Tax or Carbon Permits: The Impact on Generators' Risks," Discussion Papers 07-02, Department of Economics, University of Birmingham. [Downloadable!]
    Other versions:
  12. Asche, Frank & Osmundsen, Petter & Tveteras, Ragnar, 2002. "European market integration for gas? Volume flexibility and political risk," Energy Economics, Elsevier, vol. 24(3), pages 249-265, May. [Downloadable!] (restricted)
    Other versions:
  13. Borison, Adam & Hamm, Greg, 2005. "Better Power Contracts: Using Flexibility to Increase Value," The Electricity Journal, Elsevier, vol. 18(10), pages 62-69, December. [Downloadable!] (restricted)
  14. Roques, F.A. & Nuttall, W.J. & Newbery, D.M. & de Neufville, R., 2005. "Nuclear Power: a Hedge against Uncertain Gas and Carbon Prices?," Cambridge Working Papers in Economics 0555, Faculty of Economics, University of Cambridge. [Downloadable!]
    Other versions:
  15. Johnston, A. & Amalia, A. & Neuhoff, K., 2007. "Take-or-pay contracts for Renewables Deployment," Cambridge Working Papers in Economics 0723, Faculty of Economics, University of Cambridge. [Downloadable!]
    Other versions:
  16. Watson, Jim, 2004. "Selection environments, flexibility and the success of the gas turbine," Research Policy, Elsevier, vol. 33(8), pages 1065-1080, October. [Downloadable!] (restricted)
  17. Soderholm, Patrik, 2001. "Fossil fuel flexibility in west European power generation and the impact of system load factors," Energy Economics, Elsevier, vol. 23(1), pages 77-97, January. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Finon, D. & Roques, F., 2008. "Financing arrangements and industrial organisation for new nuclear build in electricity markets," Cambridge Working Papers in Economics 0850, Faculty of Economics, University of Cambridge. [Downloadable!]
Statistics
Access and download statistics

Did you know? All bibliographic data on IDEAS has been put in the public domain by the publishers.

This page was last updated on 2009-11-16.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.