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ASSET VALUATION

 

Electric markets are now increasingly characterized as multi-commodity markets where suppliers can simultaneously bid one or more ancillary services in addition to energy, the traditional staple (e.g. California ISO, ISO-New England & PJM LLC). This leads to two new requirements in figuring out the value of a power plant: projecting the prices for each of the ancillary services that the plant can potentially supply, and arriving at a bidding strategy that capitalizes on these price signals.

LCG uses a rational modeling approach where the price volatility due to the unpredictable swings in fundamental drivers (fuel prices, transmission bottlenecks) are captured. The UPLAN Market Simulation Model uses the Rational Expected Equilibrium Prices (REEP), factoring in several forward markets where plant operators seek to maximize profitable operations across the full array of unbundled services. Such services include regulation (up and down), spinning and non-spinning reserve capacity and replacement reserve capacity. Furthermore, these analytics allow a potential buyer of generating asset to calculate a call value for the investment proposed over the lifetime that the asset is held. This is achieved by calculating a statistical range of prices under real-life situations where each driver varies independently, we run several chronological simulations (called Monte Carlo iterations).

 

RECENT ENGAGEMENTS

Valuation of The Operation of PG&E Hydroelectric Generation Assets
LCG has significantly contributed to California Public Utilities Commission's efforts in analyzing the divestiture of the hydroelectric assets of PG&E, evaluating their operation in the competitive market and assessing their environmental impact, required under the California Environmental Quality Act (CEQA). The study developed forecasts for energy and Ancillary Services Prices at NP15. The study covers the entire hydro asset base of PG&E in Northern California.

Cost Analysis of Re-Powering Plant
This study was conducted for California Public Utility Commission. The option of repowering a plant in central California was analyzed, providing Asset Valuation using Price Forecasts of Energy and Ancillary Service at SP15

The Contribution of Energy and Ancillary Services to Net Income
This internal paper provides timely insights into income potential of generating units in the U.S. Power System through participation in the ancillary service market

Generation and Transmission Investments in Restructured Electricity Markets
In this internal research paper, LCG provides detailed methodology on prioritizing investment decisions in generators and transmission projects

Compressed Air Storaget
Asset Valuation based on optimum operation was performed for a plant operator in the Midwest.

Valuation of New Generation Options
LCG assisted Eastern Kentucky Power Cooperatives to explore various generation options over a fifteen-year planning horizon. This study involved various case studies using real option valuation techniques and developed a forecast of wholesale electric energy prices. It also evaluated unit operations, revenues and net income and simulated the volatility of prices/revenues/profits, thus providing a measure of the financial risk and the option values of the units.

Real Option Valuation of Coal- Electric Sector Analysis
Electric Power Research Institute (EPRI) in partnership with LCG Consulting has undertaken this project to quantify the value of improving the economic performance of coal-based technology versus backing it out in favor of natural gas based generation. The project uses the modern financial technique of real options analysis to perform this valuation. The real option methodology captures the operational flexibility of the generators, and the strategic adaptability inherent in R&D.

Strategic Resource Analysis
A 10-year strategic resource analysis was conducted for a major utility in the South-West. LCG delivered data upgrades and provided results of a series of simulations of the WSCC power markets, and analyses of the results for utility's interactions with power markets under various institutional arrangements.

Asset Valuation in Ontario
LCG has performed 20-year asset valuation of two coal plants and a system of hydro units study for Alliant Resource Energy and WPS energy. This study succinctly captures the key commercial, physical, regulatory, and climactic factors driving market outcomes. UPLAN takes into account the physical and financial aspects of generation and transmission in the Eastern Interconnect, which covers seven NERC regions: MAPP (U.S. and Canada), MAIN, ECAR, MAAC, NPCC, SERC, and SPP. For both off-peak and peak periods, locational energy prices were considered. The impacts of transmission constraints on price differences especially during peak usage months are projected.




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