Real Options and Energy Management: Using Options Methodology to Enhance Capital Budgeting Decisions

Abstract

Historical context and taxonomy of real options, classes of problems solved (eg, spread options such as spark spread, PUD) Overview of subject area Summary of book content. Section 1 Options from Options - Financial Options Meet Real Options: Understanding Stochastic processes - Duane Seppi Options and Option Valuation Techniques - Steve Leppard Diagrammatic Approach to Real Options - Steve Leppard and Fabio Cannizzo Optimisation and Optimisation Techniques - Shannon Burchett and Deepankar Biswas Applying Stochastic Dynamic Programming to the Valuation of Gas Storage and Generation Assets - Tom Weston Derivative Modelling Approaches in Real Option Valuation - Sailesh Ramamurtie. Section 2 Real Options and the Energy Industry Applying Real Option Valuation to Power Generation and Ancillary Services: Operating and Risk Managing Power Plants - Alexander Eydeland and Krzysztof Wolyniec Power Plant Operations and Real Options - Chung-Li Tseng and Graydon Barz Valuing and Hedging Real Options - Sailesh Ramamurtie Peaking Plant Valuation Project - A DCF/ RO comparison - Brett Humphreys and JP St Germain Price spikes and real options: Transmission Valuation - Michael Rosenberg, Michael Baron, Nikolai Sidorenko and Joseph D. Bryngelson Price Interactions of Baseload Supply Changes and Electricity Demand Shocks - Gordon Sick, Mike Stein and Robert Elliott Valuation, optimal dispatch and hedging of generation assets - Blake Johnson and Maria de Ines. Section 3 Primary inputs: a. Gas Valuation of the Operational Flexibility of Natural Gas Storage Reservoirs - Spyros Maragos b. Oil The Growth of Flexible Offshore Oil Fields - Larry Chorn and Shashidhar Rajagopalan Valuing PUD Reserves: A Practical Application of Real Option Techniques - Dan Calistrate, John McCormack and Gordon Sick Valuation of Petroleum Reserves with Quantity and Price Uncertainties: The Case of Woodside Energy - Stuart Connell. Section 4 Strategy and Environmental Issues in Electric Power: Real Options for Real Assets - a No Arbitrage Approach - Chris Harris Schemes for Emissions Management, Bottom up Approaches to Internalising the Cost of Carbon Dioxide Emissions - Shannon Burchett and Deepankar Biswas. Section 5 Case studies/panels: Valuing Generation Assets Using Real Option Competitive Price Analysis: Step-by-Step Valuation Example for a Portfolio of Generation Assets - Frank Li Analytical Valuation of a Full Requirements Contract as a Real Option: the Method of Eigenclaims - Valery Kholodnyi. Appendix Refresher of mathematical concepts: Probability and Stochastic Calculus: Review of Probability Concepts - Michael Rosenberg, Michael Baron and Joseph D. Bryngelson An Efficient and Accurate Computational Technique for Dynamic Programming with Markov Processes - Alexander Eydeland and Daniel Mahoney.

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