Valuing Flexibility in Demand-Side Response: A Real Options Approach

The investment interests in the electricity industry are transmitted through various mechanisms to other economic activities. This paper considers methods for esteeming the adaptability of demand-side response (DSR) in its capacity to react to future uncertainties. The capacity to evaluate this adaptability is particularly critical for vitality frameworks speculations given their extensive and irreversible capital expenses. The primary result of this exploration is a broad survey of current real options (RO) strategies that elucidate the suppositions and use of RO for basic leadership in engineering applications. The second result is the structure of a probabilistic RO framework and operational model for DSR that evaluates its advantages as a vitality benefit for supporting diverse market price risks. The third result of this work is the improvement of a total, general and viable apparatus for making long haul multi-arranged speculation choices in future power organizes under numerous vulnerabilities.

Keywords:

electricity , investment , uncertainty , real options analysis , demand-side response