Implementing a real option valuation method to analyse electricity network infrastructure investments with uncertainties

There is an increasing need for investments in the electricity distribution network due to the on-going clean energy transition. At the same time, distribution system operators (DSOs) are facing more uncertainties regarding their planned investments. Traditional investment analyses may not comprehensively take into account the future uncertainties and may ignore the possibilities that would have an impact on the investments. Their ability to capture managerial flexibility in adapting to unexpected market developments is limited. In the paper, we study the feasibility of implementing real option valuation methodology to investment analysis of a distribution system operator. In particular, the benefits of real option theory over traditional investment analysis methods are investigated in this context. The feasibility study of the chosen real option method was implemented in a Finnish DSO Helen Electricity Network Ltd (Helen DSO). The results demonstrate that real options valuation gives a new additional approach to analyse electricity network investments with uncertainties.