Power System Equipments Investment Decision-Making under Uncertainty: A Real Options Approach

Power supply failures have caused major social losses in the information society in the present age. Such a loss is estimated up to approximately two trillion yen when a large power failure happens in a big city such as Metropolitan Tokyo. Therefore, it is necessary to provide some remedies such as a diagnosis of the power system equipments not only for preventing the system accident of the equipment beforehand from its failures but also for guarding the social cost from increasing. The objective of the paper is to provide the preliminary research on life cycle management. In this paper, net present value (NPV) analysis and real options approach (ROA) are employed in life cycle management in investment and maintenance of power supply systems in order to keep the continuous normal operation under uncertainty.

[1]  Frode Kjærland,et al.  A real option analysis of investments in hydropower--The case of Norway , 2007 .

[2]  Jayavel Sounderpandian,et al.  Supplies from developing countries: Optimal order quantities under loss risks☆ , 2008 .

[3]  Francis M. Wells,et al.  Power Systems Disturbances and Considerations for Power Conditioning , 1985, IEEE Transactions on Industry Applications.

[4]  S. A. Abdel Sabour,et al.  Dynamics of threshold prices for optimal switches: the case of mining , 2001 .

[5]  Jussi Keppo,et al.  Real options and a large producer: the case of electricity markets , 2003 .

[6]  G. Davis,et al.  Valuing uncertain asset cash flows when there are no options: A real options approach , 2005 .

[7]  M. Baudry.  Stock externalities and the diffusion of less polluting capital: an option approach , 1999 .

[8]  M. Sandsmark.  A regional energy paradox—the case of Central Norway , 2009 .

[9]  Eduardo S. Schwartz,et al.  Investment Under Uncertainty. , 1994 .

[10]  Campbell R. Harvey,et al.  The Theory and Practice of Corporate Finance: Evidence from the Field , 1999 .

[11]  S. A. A. Sabour.  Decision making with option pricing and dynamic programming: development and application , 1999 .

[12]  Tarik Driouchi,et al.  A Robustness Framework for Monitoring Real Options Under Uncertainty , 2009 .

[13]  David N. Ford,et al.  MANAGING RISK AND UNCERTAINTY IN COMPLEX CAPITAL PROJECTS , 2004 .

[14]  Tadashi Dohi,et al.  Optimal lot sizing for an unreliable production system based on net present value approach , 2004 .

[15]  Kalevi Kyläheiko,et al.  Dynamic capability view in terms of real options , 2002 .

[16]  P. Tufano,et al.  A real-world way to manage real options. , 2004, Harvard business review.