Paper Info
Title
Valuation and Optimal Operation of Electric Power Plants in Competitive Markets
Abstract
We present an algorithm for the valuation and optimal operation of hydroelectric and thermal power generators in deregulated electricity markets. Real options theory is used to derive nonlinear partial-integro-differential equations (PIDEs) for the valuation and optimal operating strategies of both types of facilities. The equations are designed to incorporate a wide class of spot price models that can exhibit the same time-dependent, mean-reverting dynamics and price spikes as those observed in most electricity markets. Particular attention is paid to the operational characteristics of real power generators. For thermal power plants, these characteristics include variable start-up times and costs, control response time lags, minimum generating levels, nonlinear output functions, and structural limitations on ramp rates. For hydroelectric units, head effects and environmental constraints are addressed. We illustrate the models with numerical examples of a pump storage facility and a thermal power plant. This PIDE framework can achieve high levels of computational speed and accuracy while incorporating a wide range of spot price dynamics and operational characteristics.
Year
DOI
Venue
2004
10.1287/opre.1040.0117
Operations Research
Keywords
Field
DocType
operational characteristic,electric power plants,electricity market,optimal operation,competitive markets,spot price model,nonlinear output function,real power generator,thermal power generator,price spike,hydroelectric unit,spot price dynamic,thermal power plant,electric power,application
Thermal power station,Electric power,Mathematical optimization,Spot contract,Electricity,Variable pricing,Hydroelectricity,Valuation (finance),Mathematics,Electricity generation
Journal
Volume
Issue
ISSN
52
4
0030-364X
Citations 
PageRank 
References 
21
2.20
4
Authors
3
Name
Order
Citations
PageRank
Matt Thompson1212.20
Matt Davison2468.53
Henning Rasmussen3515.41