Real option valuation for reserve capacity

Moriarty, John; Palczewski, Jan

doi:10.1016/j.ejor.2016.07.003

Cited by 14 publications

(17 citation statements)

References 15 publications

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“…Therefore, take x > Notice that, when restricted to [y o , +∞), the function W is the largest convex function dominated by Q. The latter condition makes the result slightly different to the geometric characterisation in [12] (they haveĜ =L and then W is non-positive, see also [31]).…”

Section: A41 a First Optimal Stopping Problemmentioning

confidence: 98%

Nash equilibria of threshold type for two-player nonzero-sum games of stopping

Angelis¹,

Ferrari²,

Moriarty³

2018

Ann. Appl. Probab.

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This paper analyses two-player nonzero-sum games of optimal stopping on a class of linear regular diffusions with not non-singular boundary behaviour (in the sense of Itô and McKean (1974), p. 108). We provide sufficient conditions under which Nash equilibria are realised by each player stopping the diffusion at one of the two boundary points of an interval. The boundaries of this interval solve a system of algebraic equations. We also provide conditions sufficient for the uniqueness of the equilibrium in this class.

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Section: A41 a First Optimal Stopping Problemmentioning

confidence: 98%

Nash equilibria of threshold type for two-player nonzero-sum games of stopping

Angelis¹,

Ferrari²,

Moriarty³

2018

Ann. Appl. Probab.

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“…Our research is motivated by the potential use of electricity storage to smooth fluctuations in supply and demand by using contracts that involve finite or infinite time horizon call or put options. A research problem for infinite time horizon call options has already been proposed in [24], where the system operator exercises the option according to a fixed threshold strategy to request additional energy from the storage operator when total demand exceeds generation. This study has been extended in [23] to allow for more general models of the instantaneous system imbalance and negative market prices, amongst other things.…”

Section: Literature Reviewmentioning

confidence: 99%

Optimal trading of imbalance options for power systems using an energy storage device

Szabó

Duck

Johnson

2020

European Journal of Operational Research

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Energy storage devices are coming online in electricity markets around the world but are still considered an expensive solution to the load balancing problem. We propose a new market framework in which the owner of an electricity storage facility is able to optimally sell options and trade in the electricity market to add flexibility for the system operator at different times of the day. The storage operator has the possibility to optimally decide which option to offer, with the restriction of having the storage device in the appropriate mode and only at particular times. The system operator accepts these offers as possible long-term real-time balancing resorts. With the storage device in place, either electricity consumption or generated electricity can be increased in the network and in our framework this happens accordingly via the exercise of the corresponding option. Using a stochastic model for the imbalance, we calculate the real value of the optimal trading strategy for the storage operator and at the same time we can calculate the balancing cost of this resort compared to a so called "target cost" for the system operator. These results reveal that with proper parameter choices, mutual benefit is available, i.e. a financial profit for the storage operator whilst the balancing cost can also be reduced for the electricity system operator. Our results are illustrated via numerical calculations which are carried out after having the parameters of the model fit to real UK data. Optimal operational strategies are also described using our analysis.

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“…Because electricity storage technologies such as batteries, flywheels, superconducting magnetic energy stores and supercapacitors can provide fast access to power, they have the potential to perform the regulation services that are provided by conventional technologies such as generating units [3][4][5]. Accordingly, the recent papers [8,9] studied an incremental balancing reserve contract between a battery owner and the system operator in which the battery owner provides a regulation service by discharging electricity from the battery. These papers studied the battery owner's decision to enter the contract, and the decision to buy electricity beforehand if necessary.…”

Section: (B) Procurement Of Power System Balancing Servicesmentioning

confidence: 99%

“…In the case of diffusion processes, the transformation technique described in [11], which underpins theorems 3.1 and 3.2 of this paper, can be used to convert the problem into another one for Brownian motion without discounting. This has been done recently in [9] for a slightly different model of the incremental reserve contract studied by [8].…”

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confidence: 99%

Real option valuation of a decremental regulation service provided by electricity storage

Szabó

Martyr

2017

Phil. Trans. R. Soc. A.

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This paper is a quantitative study of a reserve contract for real-time balancing of a power system. Under this contract, the owner of a storage device, such as a battery, helps smooth fluctuations in electricity demand and supply by using the device to increase electricity consumption. The battery owner must be able to provide immediate physical cover, and should therefore have sufficient storage available in the battery before entering the contract. Accordingly, the following problem can be formulated for the battery owner: determine the optimal time to enter the contract and, if necessary, the optimal time to discharge electricity before entering the contract. This problem is formulated as one of optimal stopping, and is solved explicitly in terms of the model parameters and instantaneous values of the power system imbalance. The optimal operational strategies thus obtained ensure that the battery owner has positive expected economic profit from the contract. Furthermore, they provide explicit conditions under which the optimal discharge time is consistent with the overall objective of power system balancing. This paper also carries out a preliminary investigation of the 'lifetime value' aggregated from an infinite sequence of these balancing reserve contracts. This lifetime value, which can be viewed as a single project valuation of the battery, is shown to be positive and bounded. Therefore, in the long run such reserve contracts can be beneficial to commercial operators of electricity storage, while reducing some of the financial and operational risks in power system balancing.This article is part of the themed issue 'Energy management: flexibility, risk and optimization'.

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Real option valuation for reserve capacity

Cited by 14 publications

References 15 publications

Nash equilibria of threshold type for two-player nonzero-sum games of stopping

Nash equilibria of threshold type for two-player nonzero-sum games of stopping

Optimal trading of imbalance options for power systems using an energy storage device

Real option valuation of a decremental regulation service provided by electricity storage

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