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Valuing Expansions of the Electricity Transmission Network under Uncertainty: The Binodal Case

Author

Listed:
  • Luis M. Abadie

    (Basque Centre for Climate Change (BC3), Alameda Urquijo 4,4ª-1ª, 48008 Bilbao, Spain)

  • José M. Chamorro

    (University of the Basque Country, Av. Lehendakari Aguirre 83, 48015 Bilbao, Spain)

Abstract

Transmission investments are currently needed to meet an increasing electricity demand, to address security of supply concerns, and to reach carbon-emissions targets. A key issue when assessing the benefits from an expanded grid concerns the valuation of the uncertain cash flows that result from the expansion. We propose a valuation model that accommodates both physical and economic uncertainties following the Real Options approach. It combines optimization techniques with Monte Carlo simulation. We illustrate the use of our model in a simplified, two-node grid and assess the decision whether to invest or not in a particular upgrade. The generation mix includes coal- and natural gas-fired stations that operate under carbon constraints. The underlying parameters are estimated from observed market data.

Suggested Citation

  • Luis M. Abadie & José M. Chamorro, 2011. "Valuing Expansions of the Electricity Transmission Network under Uncertainty: The Binodal Case," Energies, MDPI, vol. 4(10), pages 1-32, October.
    • Handle: RePEc:gam:jeners:v:4:y:2011:i:10:p:1696-1727:d:14473
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    References listed on IDEAS

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    Cited by:

    1. Sini Han & Hyeon-Jin Kim & Duehee Lee, 2020. "A Long-Term Evaluation on Transmission Line Expansion Planning with Multistage Stochastic Programming," Energies, MDPI, vol. 13(8), pages 1-18, April.
    2. Marie-Cécile Alvarez-Herault & Jean-Pierre Dib & Oana Ionescu & Bertrand Raison, 2022. "Long-Term Planning of Electrical Distribution Grids: How Load Uncertainty and Flexibility Affect the Investment Timing," Energies, MDPI, vol. 15(16), pages 1-27, August.

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