Valuation of CHP power plant portfolios using recursive stochastic optimization

In portfolio optimization including CHP plants, the heat demand provides a power plant overwhelming restriction. Thus usual real option approaches used for valuing conventional power plants cannot be applied directly. But on the other hand, the operation of CHP systems in liberalized electricity markets has also to take into account uncertain power prices in addition to uncertain heat and electricity demand. Consequently also the valuation of flexibility is an important issue given the prevailing uncertainty on energy prices. In order to cope with this issue, a combination of a recursive approach with a stochastic optimization for each decision point has been developed. The method allows computing both the value and the risk inherent in a CHP power plant portfolio. The approach is applied for a German CHP system consisting of eight CHP units and two peak-load boilers