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Valuation methods for capital investment in merchant power plants

Author(s)
Hottle, Nathan E. (Nathan Edward), 1976-
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Massachusetts Institute of Technology. Technology and Policy Program.
Advisor
Paul L. Joskow.
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M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission. http://dspace.mit.edu/handle/1721.1/7582
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Abstract
Wholesale electricity in the U.S. and many other countries is increasingly being supplied by unregulated firms competing to sell their product in competitive markets. Developers of the new merchant plants face a different set of risks than the regulated vertically integrated utilities that formerly owned the generating resources that supplied electricity to customers in their service area. This thesis evaluates the impact that industry restructuring will have on investments in capital-intensive electricity generation technologies and assesses the applicability of traditional economic valuation methods to investment decisions in a competitive wholesale electricity market. The evidence is presented through the use of a case study on the Likelihood of investment in new nuclear power plants in both organizational arrangements as predicted by two economic valuation methods. The results suggest that merchant developers will favor less capital-intensive technologies and that the traditional valuation method for power plant investment fails to capture the total effect on investment decisions of the new market arrangement. Economic studies that ignore the true nature of merchant plant investment will provide misleading conclusions regarding the relative competitiveness of generating technologies.
Description
Thesis (S.M.)--Massachusetts Institute of Technology, Engineering Systems Division, Technology and Policy Program, 2003.
 
Includes bibliographical references (p. 87-88).
 
Date issued
2003
URI
http://hdl.handle.net/1721.1/30032
Department
Massachusetts Institute of Technology. Engineering Systems Division; Technology and Policy Program
Publisher
Massachusetts Institute of Technology
Keywords
Technology and Policy Program.

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