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Valuing Expansions of the Electricity Transmission Network under Uncertainty: The Binodal Case
Basque Centre for Climate Change (BC3), Alameda Urquijo 4,4ª-1ª, 48008 Bilbao, Spain
University of the Basque Country, Av. Lehendakari Aguirre 83, 48015 Bilbao, Spain
* Author to whom correspondence should be addressed.
Received: 1 August 2011; in revised form: 27 September 2011 / Accepted: 12 October 2011 / Published: 21 October 2011
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.
Keywords: electricity; transmission network; congestion; expansion; load; fuel prices; generation costs; emission allowances; EU Emissions Trading Scheme (ETS); GHG abatement
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Abadie, L.M.; Chamorro, J.M. Valuing Expansions of the Electricity Transmission Network under Uncertainty: The Binodal Case. Energies 2011, 4, 1696-1727.
Abadie LM, Chamorro JM. Valuing Expansions of the Electricity Transmission Network under Uncertainty: The Binodal Case. Energies. 2011; 4(10):1696-1727.
Abadie, Luis M.; Chamorro, José M. 2011. "Valuing Expansions of the Electricity Transmission Network under Uncertainty: The Binodal Case." Energies 4, no. 10: 1696-1727.