Risk Assessment for Generation Investment based on Utility Indifference Pricing

摘要

Recently, deregulation and reform of the electricity supply industry have been progressing in many parts of the world. The new framework is characterized by the introduction of competition in electricity generation and end-user supply, and new access to electricity networks. Before the deregulation, minimization of total cost is the most important consideration when planning generation and investment in power plant construction. However, following the introduction of deregulation, profit maximization that considers future uncertainty has become important. In order to react to future uncertainties and market risks in a competitive environment, a good method for determining investment in generation assets considering revenue needs to be developed. The revenue from generation assets must be estimated properly based on both long-term forecasts of demand and the market price, as well as the investor's attitude toward risks that the electric power industries are expected to encounter. The net present value (NPV) method is a well-known approach for assessing project value. However, with the NPV method, the risk to investors caused by uncertainty about future cash inflow cannot be evaluated; indeed, in the framework, the present value of a project is calculated only on the basis of the discounted value of future cash inflow with the interest rate. One possible effective approach to compensate for this defect is the project assessment method based on "utility indifference pricing" in the expected utility theory. In this method, the net present value of future cash inflow is evaluated by adopting a sort of equivalence concept to an expected utility function that assigns a value to the risk for the investor. In this paper, we propose a risk assessment method for generation investment using the net present value based on utility indifference pricing. In order to verify our method, we calculate the conventional NPV and the proposed NPV based on utility indifference pricing assuming investment in a crude oil thermal power plant. In the calculation, the fluctuations in prices in the wholesale power market and crude oil are considered as the investor's risks. As a result, the proposed NPV is smaller than the conventional NPV. This shows that the proposed method evaluates the risks properly, because the risk avoidance type of expected utility function is used in the calculation. The risk assessment method proposed in this paper can be expanded to the assessment of transmission projects by considering particular transmission restrictions as well as the generation project.