Abstract
Recently the bidding system of investments in thermal power generations has been introduced. The existing power producer calls for bids for replacements and new installations to various agents as independent power producers (IPPs) via the system. In this paper, we consider the replacement problem under the system in a case for which there exist two agents as existing power producer and IPP. The replacement for thermal power plants is evaluated by taking into account the uncertainty of fuel cost in order to examine the effect of the system on the decision criteria of the replacement. In the analysis, we use the real options framework that is one of the economic evaluation method under the uncertainty. In particular, we derive a threshold for the replacement, which represents an optimal investment timing. By means of the threshold, we analyze an effect of wholesale electricity prices and bidding prices on the replacement timing. Additionally, we show that the replacement is accelerated due to the decrease in the bid price whereas excessive decreases induce the reduction in the replacement opportunity.
