MARKET MODELING FOR POWER GENERATION INVESTMENT ANALYSIS IN TURKEY

摘要

Investments in the electricity generation are very capital intensive with long lead times and payback periods. Decisions by private or state owned companies to invest on purely economic grounds are typically based on an expectation of sufficient cash flows based on the market price. rnIn traditional regulatory regimes, investment costs are passed through to customers directly so that investors would have guaranteed return on their investments. In a liberalized electricity market, electricity prices are the key driver of investment decisions for power generation. rnInvestment decisions for power generation are based on expected spot prices, i.e. forward/futures prices. In other words, economic and financial viability of investments are based not only on spot market prices, but also on the mid- and long-term expectations of price development. These expectations are market signals for making well-founded estimations of investment returns. rnWhen there is enough reserve capacity, for example during off-peak period, prices of electricity in perfectly competitive markets reflect short-run marginal cost (SRMC). Market prices tend to rise above SRMC when reserve margins are low, for example during peak period, and in oligopolistic markets. In case of market prices rising above SRMC, generators are able to recover fixed costs and provide a return on investment. In the long run, average prices should be sufficient to sustain ongoing investment by covering fixed costs and providing a return on investment as well as covering variable costs. rnAccordingly, it is crucial for an investor to make correct predictions in a highly volatile and uncertain market environment. Although there are many unknowns in terms of legislation, major economic incidents and future electricity price, solid market models could provide great benefit to market players. There are a number of models in the electricity sector which are capable of modeling for supply and demand, regulatory environment and market developments and provide invaluable insight to any interested party, not only to investors but also to financial institutions and private lenders. rnThis study provides an overview of different market modeling approaches for power generation investment and particular emphasis is given to applications in Turkish electricity market, which is one of the fastest growing electricity markets in the world and in transition to liberalized market structure.