Real option valuation of flexibilities in the integrated planning of natural gas-fired distributed generators and natural gas distribution system

Abstract

This paper presents a framework for evaluating flexibilities and options that accompany staged investment in energy systems such as distributed electric power generators and natural gas distribution network. The timing options of investments in the electric and natural gas systems are first determined by solving a joint long-term energy system planning problem in the presence of uncertain electric power demand. A cumulative real options analysis is then carried out on the timing options presented by the multi-stage joint planning solutions. The value of flexibilities and options are illustrated by testing suggested planning approach on a modified 9-bus distribution text system.