Analytical assessment of wind power generation asset in restructured electricity industry

Abstract

An analytic approach using real option theory is proposed in this paper for evaluation of wind power generation asset investment in restructured electricity industry. The model for the mean reversion process with long-term periodic mean is employed to describe the special characteristics of electricity price such as fluctuation, uncertainty and periodicity. Analytic expressions for wind power generation output are derived. Based on the established price model and output model, the wind power generation asset to be invested is evaluated by adopting the approach of spark spread real option. Financial tools, such as Value at Risk (VaR) and Conditional Value at Risk (CVaR), are applied for risk assessment. The validity of the proposed method is illustrated by numerical simulation tests.