Valuation of Combined Cycle Gas Turbine (CCGT) Participants in power markets can have exposure to generation asset risk

through their ownership of physical assets, or by entering into tolling or other long-term contracts for generation capacity. In part due to the complex nature of power prices, and in part due to the difficulties in modeling their physical characteristics and operational constraints, generation assets have always been a challenge to value accurately. In examining some existing solutions for example, we found that most traditional cost-based valuations essentially ignore market price information while the ever-popular method of treating power plants as simple spark-spread options fails to take into account their many operational constraints. Consequently, the former tends to under-value generation assets while the latter over-value the assets. In view of these shortcomings, @ENERGY (Power Generation) takes an integrated approach: it uses a simulation based price framework  the FEA Power Sector Model, the available price-only models or user supplied simulation data  to produce realistic, market-calibrated power and fuel prices and then, applies Least Squares Monte Carlo (LSMC), a simulation-based dynamic programming technique, to properly handle operational constraints. In this section, we shall limit our discussion to relevant plant characteristics (and relegate that of plant valuation, including LSMC, to valuation methodology on page 21).

Valuation Methodology

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