Gerardo Blanco

Real Option Valuation of FACTS Investments Based on the Least Square Monte Carlo Method

Abstract form only given. Efficient and well-timed investments in electric transmission networks that cope with the large ongoing power market uncertainties are currently an open issue of significant research interest. Strategic flexibility for seizing opportunities and cutting losses contingent upon an unfavorable unfolding of the long-term uncertainties is an attribute of enormous value when assessing irreversible investments. In this sense, flexible AC transmission systems (FACTS) devices appear as an effective manner of adding flexibility to the transmission expansion planning. This article proposes an investment valuation approach which properly assesses the option value of deferring transmission lines investments whereas gaining flexibility by investing in FACTS devices. The flexibility provided by FACTS investments-option to abandon and to relocate-is assessed through a real option valuation approach based on the novel least square Monte Carlo method. In order to illustrate the practicability of the proposed valuation approach, a traditional expansion strategy (lines) and a flexible investment strategy (lines and FACTS) are compared in a real study case. The article shows that a proper combination of lines and FACTS leads to efficient investments by allowing a progressive adaptation of the transmission grid to the changing scenarios.

Valuing investments in distribution networks with DG under uncertainty

After deregulation of the electricity sector, Distributed Generation (DG)has received increasing interest in the power systems development. The identification of efficient and well-timed investments in electric distribution networks that cope with large power market uncertainties is currently an open issue of significant research interest. Strategic flexibility for seizing opportunities and cutting losses contingent upon an unfavorable unfolding of the long-term uncertainties is an attribute of enormous value when assessing irreversible investments in Distribution Systems. In this sense, DG units appear as an effective manner of adding flexibility to the distribution expansion planning. This article proposes an investment valuation approach which properly assesses the option value of deferring investments in distribution feeders whereas gaining flexibility by investing in DG units. The flexibility provided by DG investments -option to abandon and to relocate-is assessed through a Real Option Valuation approach based on the novel Least Square Monte Carlo method(LSM).In order to illustrate the feasibility of the proposed valuation approach, a traditional expansion strategy (distribution feeders) and a flexible investment strategy (distribution feeders and DG) are compared in a study case. The article shows that a proper arrangement of feeders and DG may lead to efficient investments by allowing a progressive adaptation of the distribution grid to the changing scenarios.

Transmission Expansion Planning under Uncertainty: An Approach based on Real Option and Game Theory against Nature

Generally, transmission networks are not adapted to the new paradigms of the emerging power markets; therefore, transmission lines often operate under significant congestion levels. These issues are even more increased in power systems with high levels of demand growth, where usually even larger grid reinforcements are required. In addition, the technical and economic feasibilities of expansion alternatives are affected by the major uncertainties of the emerging economies. Consequently, this paper proposes a transmission system expansion approach focused on analysis and management of the risks which impact on the assessment of transmission investments. In this context, the valuations of transmission investments under random uncertainties are performed in terms of the social welfare, by designing risk management strategies based on real option concepts. Finally, non-random uncertainties are analyzed by criteria based on game theory against nature, in order to assess the robustness of a given expansion alternative under unforeseen scenarios. The approach is illustrated by a real application to the transmission system.

Transmission investments under uncertainty: The impact of flexibility on decision-making

Nowadays, higher electricity consumption and need for economic efficiency have led to increased use of the electric power transmission network. After the severe absence of investments in the transmission grid observed in the last decades, the transmission investment problem is currently a topic of increasing interest among the power market agents as well as regulatory authorities. Therefore, tailored investment valuation models are needed for quantifying the contribution of strategic flexibility in the investment portfolios. In addition, models capable of replicating the uncertain evolution of the long-term behavior of power markets represent a reliable benchmark for designing contingent actions against unfavorable unfolding of uncertainty, aiming at ensuring the transmission network adaptation. This paper analyzes the impact of flexibility on the evaluation of transmission investment under uncertainty based on system-wide social welfare. Stochastic simulations are performed in order to characterize the uncertainty behavior of the investment portfolio performance. From these simulations, an appraisal methodology based on a Real Options approach is applied for valuing the strategic flexibility embedded into the transmission projects and finding the optimal timing for investing. The results show how omission or incorrect handling, of ongoing project uncertainty of the key variables could lead to non-optimal decisions.

Analysis of power systems expansion processes based on System Dynamics - state-of-the-art

The evolution to electricity markets liberalization has supposed a change of paradigm in the scope of decision-making processes inherent to the expansion of power systems. This is mainly due to the participation in these processes of various autonomous agents who does not always act in coordination. In response to this, the use of simulation approaches is useful to analyze the behavior and interaction of market participants. This paper is focused on conducting a state-of-the-art review about the implementation of System Dynamics (SD) approach to replicate the dynamic of long-term infrastructure investments in power systems. Regarding to this, it has been found that SD has been extensively used both to evaluate the expansion of generation capacity and the impact of investments in transmission network required to interconnect different electricity markets. However, it has not been found an application background of SD to assess the dynamic interaction among investments decisions in generation and transmission. In this context, the main contribution of the paper is to propose basic outlines to analyze the interaction of investments undertaken by agents of generation and transmission under a competitive electricity market by focusing on SD. Finally, this model seeks to be a tool to outline policies that encourage coordination and cooperation among autonomous power market agents.

Real options on power system planning under uncertainties and efficiency constraints

Deregulation and large-scale renewable energy penetration have increased uncertainties in power system planning. Strategic flexibility in project planning and decision making is needed to mitigate increasing risks. This paper proposes a methodology that improves decision making by valuing the flexibility of investment strategies to cope with uncertainty. This is done by integrating maintenance and expansion planning. The flexibility of investment strategies, including reinvestment and expansion projects under uncertainties, is evaluated by a Real Option approach. The proposed methodology is tested on a 30-bus IEEE system. Monte Carlo simulations of uncertain state variables and the Least-Squares Monte Carlo approach are applied for evaluating investment options using dynamic backward programming. The analysis shows that flexible strategies gain in importance with increasing uncertainty and under efficiency constraints. In addition, the deferral of the final investment decision between alternative strategies remains a valuable option.

Investment strategies as a portfolio of real options for distribution system planning under uncertainty

Due to the liberalization of the electricity sector and the regulation of revenues, the distribution system operator has to cope with a strong cost-pressure to achieve a cost-efficient grid. Therefore, well-timed investments and choice of the right expansion strategies have become one of the main tasks. Consequently, distribution system planning is a complex decision making process, which includes the challenge to choose among alternatives that provide, on one hand, a sufficient level of flexibility to react on unforeseen future development and, on the other hand, are economically efficient. For managing the planning uncertainties some kind of strategic flexibility must be considered in the valuation of distribution system planning alternatives. This article presents a valuation approach for strategic investments based on the real option valuation method to value the strategic flexibility of several investment strategies. Furthermore, this paper presents a new approach for visualizing different investment strategies in a kind of “strategic option space” to compare them with each other.

Valuing the dynamic power flow control of FACTS devices under uncertainties

Restructuring of the power industry that have arisen from the unbundling of the electrical industry have led to complex and still unsolved problems related to transmission system expansion owing to the singular characteristics of their investments. These difficulties are currently issues of considerable interest for researchers and policy-makers since the lack of adaptation of the transmission infrastructure may damage operations and free competition in the emerging electrical sector. In this context, some degree of dynamic control within the transmission investments is deemed to be necessary in order to face the increasing uncertainties of the new market scenarios through contingent claims, which allow the planner to adapt the investment under scenarios where the uncertain variables unfold unfavorably. Under this conjuncture, this paper presents an approach for valuing the dynamic power flow control of FACTS devices under uncertain variables of liberalized power markets as well as the evaluation of the flexibility of power transmission investments through a Real Option Valuation approach based on the Least Square Monte Carlo method. In order to illustrate the proposed valuation approach, a study case is presented, where it shows that the flexibility of the dynamic controllers under uncertainties could plenty justify the higher cost of these devices.

Modelling of efficient distributed generation porfolios using a multiobjective optimization approach

In course of the German power system transition to a higher share of renewable energy sources decentralized activities constitute a major driving force for the growth of renewable energy capacity. In this context plural activities and initiatives on the local and regional level are followed to develop concepts for an efficient and sustainable regional energy supply. To achieve these goals various objectives has to be simultaneously accomplished. Generally, these objectives contradict to each other and cannot be handled by a single optimization technique. This paper proposes a multiobjective (MO) optimization approach for identifying efficient DG generation portfolios regarding multiple objectives. The methodology presented allows the planner to decide the best trade-off between the self-supply degree, environmental impact and electricity generation cost. The proposal applies, in a study case, a MO genetic algorithm that allows identifying a set of non-inferior Pareto-optimal solutions.

Guidelines for a regional electricity market model in the Southern Cone

The present work analyzes the experiences of electric integration in Latin America and the Caribbean, which had the main objective of maximizing social benefit. The projects developed in South America were : i) MERCOSUR, which remained without further progress than a mere energy interconnection and complementarity, and ii) UNASUR, which is currently reviving the desires of a true integration. For their part, the Andean countries formed the CAN, where their progress does not go beyond bilateral electricity exchange agreements; And on the other hand, SICA is in Central America, where it could be said that if there is an integration of electric markets. Each integration model examined its level of progress and identified the solutions reached and some barriers to its development. It was found that there is a history of cooperation and exchanges of electricity between the countries of the Southern Cone, which can be considered as the fundamental bases for integration, identifying the hydroelectric plants ITAIPU, YACYRETA and SALTO GRANDE, and the conversion networks at the border. The work proposes to create a SIESUR Electric Link, where the potential of electricity exchanges between agents of the region, coordinated by MESUR, can be exploited by replicating the guidelines proposed by SICA.