Title
Expansion planning for transmission network under demand uncertainty: A real options framework
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.
Copyright Owner
Institute of Industrial Engineers
Copyright Date
2018
Language
en
File Format
application/pdf
Recommended Citation
Fucuksayacigil, Fikri and Min, K. Jo, "Expansion planning for transmission network under demand uncertainty: A real options framework" (2018). Industrial and Manufacturing Systems Engineering Publications. 201.
https://lib.dr.iastate.edu/imse_pubs/201
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.