Risk assessment of generation investment in spot market considering operation constraints

Abstract

This paper proposes an improved model for real option evaluation of generation asset and risk assessment in spot market. A modified mean reversion model with long-term periodic mean, which takes its fluctuation, uncertainties and cyclic characteristics into account, is applied for the description of the electricity price process. System operation constraints are added into the optimization model of GENCOs' active power output. Based on the price process and the optimal output model, generation asset can be valuated by spread real option approach. In the interest of controlling the risks of the investment on generation expansion project, value at risk (VaR) and conditional value at risk (CVaR) are used as the risk assessment tools to help the investors making informed investment decision. Numerical simulation experiment on IEEE 30 system is given to show the validity of the proposed method.