In a regulated environment, the demand and cost of generating electricity can be accurately forecasted since these are elements of a take-or-pay contract with the off-taker. However, forecasting the sale of electricity is much more volatile if you will offer electricity over a wholesale energy spot market.
How is a merchant plant (deregulated environment) valued if one were to do a feasibility analysis? How do I incorporate the Real Options Valuation (ROV) approach in the financial model?
2006-08-03 19:05:17 · 4 answers · asked by J 4 in Business & Finance ➔ Investing
This question refers to detailed financial modeling. Target audience for the query are Investment Bankers, Equity Analysts, and Management Consultants.
2006-08-05 02:25:07 · update #1
Use Real Options Valuations by integrating the spark-spread approach. Value the revenue streams only if the price of electricity is higher than the marginal cost to produce one kilowatt.
2006-08-07 02:39:10 · answer #1 · answered by Jinky l 1 · 0⤊ 0⤋
It means expressing the current value of an amount to be received at a future time. If you had the choice of receiving $100 now or $100 one year from now, taking the $100 now is more valuable, since you could invest it and it'd be worth more than $100 in a year. Discounting a future payment (or series of payments) just expresses the amount(s) in terms of what you'd need to invest today to have that same amount in the future.
2016-03-16 13:29:31 · answer #2 · answered by Anonymous · 0⤊ 0⤋
as a degreed but non professional analyst, I would value the plant at REPLACEMENT COST as of the moment it were operative. The other variable would be THE COST OF CAPITAL. The other variable here would be RATE OF RETURN, which would be backed out of the rate paid, which only could be determined roughly from a SWAG, based on a supply/demand curve based upon historical or interpolated data from market research. Also, considering market elasticity of demand, one would have to consider what adding the plants capacity to the effecitive radius of the marketing region would do to impact demand, and thus WHAT THE MARKET WOULD BEAR. Also, are the rates to be incremental, interruptible or fixed?? All these items need to be included.
Good Luck
2006-08-05 09:31:22 · answer #3 · answered by denaliguide2 3 · 0⤊ 0⤋
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2006-08-04 00:24:00 · answer #4 · answered by home_insurance_expert 1 · 0⤊ 0⤋