We present a method for valuing a power plant over a short term period using Monte Carlo simulation. The power plant valuation problem is formulated as a multi stage stochastic problem. We assume there are hourly markets for both electricity and the fuel used by the generator, and their prices follow some Ito processes. At each hour, the power plant operator must decide to run or not to run the unit so as to maximize expected profit. A certain lead time for commitment decision is necessary to start up a unit. The commitment decision, once made, is subject to physical constraints such as minimum uptime and downtime constraints. The generator''s startup cost, is also taken into account in our model. The Monte Carlo method is employed not only in forward moving simulation, but also backward moving recursion of dynamic programming. We demonstrate through numerical tests how the physical constraints affect a power plant value.
C. Tseng and G. Barz, "Short-Term Generation Asset Valuation," Proceedings of the 32nd Annual Hawaii International Conference on Systems Sciences, 1999, Institute of Electrical and Electronics Engineers (IEEE), Jan 1999.
The definitive version is available at http://dx.doi.org/10.1109/HICSS.1999.772863
32nd Annual Hawaii International Conference on Systems Sciences, 1999
Engineering Management and Systems Engineering
Keywords and Phrases
Ito Processes; Monte Carlo Methods; Monte Carlo Simulation; Backward Moving Recursion; Commitment Decision; Downtime Constraints; Dynamic Programming; Expected Profit; Forward Moving Simulation; Hourly Markets; Lead Time; Minimum Uptime; Multi Stage Stochastic Problem; Numerical Tests; Physical Constraints; Power Plant Operator; Power Plant Valuation; Power Plant Value; Power Plants; Power System Economics; Short Term Generation Asset Valuation; Short Term Period; Startup Cost
Article - Conference proceedings
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