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Real Options and Transmission Investment: the New Zealand Grid Investment Test

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  • Boyle, Glenn
  • Guthrie, Graeme
  • Meade, Richard

Abstract

Responsibility for approving proposed transmission investment programmes in New Zealand has recently been placed in the hands of a newly-formed government regulator. In this paper we develop an analytical framework for conceptualising the investment test proposed by this regulator. Our framework reveals that the test involves a complex set of tradeoffs between economies of scale the time value of money and flexibility in the timing level and location of transmission investment assessment of which requires explicit recognition and valuation of real options.

Suggested Citation

  • Boyle, Glenn & Guthrie, Graeme & Meade, Richard, 2006. "Real Options and Transmission Investment: the New Zealand Grid Investment Test," Working Paper Series 18941, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    • Handle: RePEc:vuw:vuwcsr:18941
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    File URL: https://ir.wgtn.ac.nz/handle/123456789/18941
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    References listed on IDEAS

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    1. Joskow, Paul L., 2005. "Transmission policy in the United States," Utilities Policy, Elsevier, vol. 13(2), pages 95-115, June.
    2. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    3. Milne, Alistair & Whalley, A Elizabeth, 2000. "'Time to build, option value and investment decisions': a comment," Journal of Financial Economics, Elsevier, vol. 56(2), pages 325-332, May.
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    Keywords

    grid investment test; New Zealand;

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