Investment timing in the power generation sector

Abstract

Examining the planning of power generation mix and the investments characterizing the industry, we face a complex problem for many reasons. The valuation difficulties resulting from the specialities of the industry (irreversibility, uncertainty, long construction periods); or specialities characterizing the industry itself (many actors with different preferences and/ or risk attitudes, changing policy and market environment, speciality related to power as a commodity) all result in a complex decision making process. In this study we examined the timing flexibility characteristic of the power generation investment. We found that the timing, and abandonment decision can add value to this investments.