Fuzzy Real Options Method for Generation Investment Evaluation under Uncertainties

Power generation projects are usually capital-intensive and require long lead time, while power consumption demands high reliability of supply service. Therefore this kind of investment faces much complex situation and uncertainties especially in the liberalized electricity market. The uncertain factors bring risks and affect the benefit of the investment. The traditional DCF method supposes that the present value of the project is assured and the investment process is static. It ignores the impacts of the uncertain factors on the evaluation as well as the values of flexible management. This paper analyzes the uncertain factors in generation investment and the real options features. The present value of the generation investment is presented in the form of trapezoidal fuzzy number. The real options theory is introduced and a new evaluation and decision support method is formulated for generation investment evaluation. The numerical example illustrates the correctness and effectiveness of the proposed model.