Evaluation of Investments in Electricity Infrastructure Using Real Options and Multiobjective Formulation

The electrical sector has become highly competitive introducing new levels of uncertainty. In response to this situation, assessment methods and investment projects need to evolve in order to incorporate different uncertainties in the planning process and to consider adequately the multiple objectives of a competitive environment. This paper discusses an analysis method which possesses the above mentioned characteristics taking an approach based on real options, which permits the evaluation of investment alternatives in multi-objective applications to be made. This provides project administrators with a tool to decide which objectives need higher consideration within the planning process. The method proposed is applied to a case study on a Mexican electricity system and considers the objectives for maximising economic profit while minimis-ing economic loss due to reliability and power quality issues in the electricity supply.