Project valuation & power portfolio management in a competitive market

The electric industry throughout most of the USA is undergoing some form of deregulation and opening up of the market. With open access come new entrants to the market and an increased liquidity of the market. This paper concentrates on project valuation and power portfolio management issues in a competitive utility environment. These issues include decisions on whether or not to enter into contracts to buy or sell energy over the short or long term, whether or not to build a power plant, whether or not to defer or accelerate a project, etc. The methodology presented potentially has wide application in the deregulated competitive electricity market, from managing the power portfolio of a marketer facing competition and valuing a risky power plant investment by an independent power producer to pricing electricity options and determining the insurance premium appropriate for the entity´s risk tolerance.