2008 Volume 1 Pages 1-17
This paper investigates an investment project of power plants which have the operational flexibility to start-up and shut-down. The project analyzed in this study consists of two sequential phases such as the construction and the operation of the power plant. We develop a simulation model taking into account the uncertainties of construction cost, electricity prices, and fuel prices. Consequently, the project value and the probability distribution of the value are calculated by using the model. Furthermore, we show the effect of the investment rate switching and the spark spread options on the project value.
