The evaluation of power plant investments in the Korean electricity industry

Yun, T 2010, The evaluation of power plant investments in the Korean electricity industry , PhD thesis, Salford : University of Salford.

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The purpose of this thesis is to use real option methodologies to assess capital investment decisions of near future projects that will be made in Korea. I compare two base load plants burning different fuels such as coal and uranium within the CO2 allowance trading context to provide prominence to a nuclear power plant. Nuclear power plants have recently been rising to the surface as one of the leading alternatives to the generation plants using fossil fuels. To consider the flexibilities and uncertainties in a competitive market environment, I employed the real options approach, due to its superiority in dealing with uncertainties and incorporating management's flexibilities into the valuation process. Furthermore, I tried to evaluate the investment opportunity contingent on at least two underlying assets featuring different price evolution behaviours. As main pricing skeletons, I adopted the mean reversion model for the evolution of electricity prices and the gBm model for that of the COi allowance prices and construction costs of a nuclear power plant. In addition, I used the Monte Carlo simulation approach as the approximation tool to overcome a limitation of the analytic approach. Our findings confirmed that the real options approach uncovered hidden strategic value and provided critical insights to the investment decision making process. Keywords: Investment Analysis, Real Option Approach, Base Load Plant, CO2 Allowance, Electricity Price

Item Type: Thesis (PhD)
Contributors: Lynch, N (Supervisor) and Baker, R (Supervisor)
Schools: Schools > Salford Business School
Depositing User: Institutional Repository
Date Deposited: 03 Oct 2012 13:34
Last Modified: 04 Aug 2022 11:23

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