Campus Units

Industrial and Manufacturing Systems Engineering

Document Type

Article

Publication Version

Accepted Manuscript

Publication Date

2018

Journal or Book Title

The Engineering Economist

Volume

63

Issue

1

First Page

20

Last Page

53

Research Focus Area(s)

​Operations Research

DOI

10.1080/0013791X.2016.1256459

Abstract

In recent years, there has been much expectation that transmission expansion planning should address ever increasing demands for transmission services under significant and complex economic and regulatory uncertainties. In this article, toward meeting the aforementioned expectation, we develop and analyze a real options framework that provides the valuation of a transmission owner’s option to expand in his or her network. What distinguishes our framework from the extant literature is that the evolution of the demand follows a geometric Brownian motion process, it explicitly accounts for the physical flow of the electric power economically manifested as the locational marginal prices, and it shows how the values of the expansion options can be determined in the transmission network. Furthermore, our framework shows how to value an option to expedite or delay can be determined given that a specific expansion is planned. An extensive numerical example is presented to illustrate the key features of our framework.

Comments

This is an Accepted Manuscript of an article published by Taylor & Francis as Kucuksayacigil, Fikri, and K. Jo Min. "Expansion planning for transmission network under demand uncertainty: A real options framework." The Engineering Economist 63, no. 1 (2018): 20-53. DOI: 10.1080/0013791X.2016.1256459. Posted with permission.

Copyright Owner

Institute of Industrial Engineers

Language

en

File Format

application/pdf

Published Version

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