Evaluating Investments of Power Plant under Uncertainty: Investment Rate Switching and Spark Spread Options

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  • Takashima Ryuta
    Department of Nuclear Engineering and Management, Graduate School of Engineering, The University of Tokyo
  • Miyaguchi Naoya
    Department of Industrial and Management Systems Engineering, Graduate School of Creative Schience and Engineering, Waseda University
  • Goto Makoto
    Graduate School of Finance, Accounting and Law, Waseda University

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Other Title
  • 不確実性下における発電プラントの投資評価:投資率変更オプションとスパークスプレッド・オプション
  • フカクジツセイ カ ニ オケル ハツデン プラント ノ トウシ ヒョウカ トウシリツ ヘンコウ オプション ト スパークスプレッド オプション

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This paper investigates an investment project of power plants which have the operational flexibility to start-up and shut-down. The project analyzed in this study consists of two sequential phases such as the construction and the operation of the power plant. We develop a simulation model taking into account the uncertainties of construction cost, electricity prices, and fuel prices. Consequently, the project value and the probability distribution of the value are calculated by using the model. Furthermore, we show the effect of the investment rate switching and the spark spread options on the project value.

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