The Decision-Making Process for Generator Operation or Temporary Suspension Under Uncertainty by Applying Real Options

In the highly uncertain environment surrounding the power system, the decision to suspend or resume the operation of generators is an important decision-making issue for utilities with large amounts of generation assets. Suspending generator operations and resuming operations if necessary in the near future may be one option for an asset management approach. In this paper, we propose a valuation method that applies a real option asset valuation approach and uses one of the binomial tree models to compute the decision-making process problem and to decide whether to operate or temporarily suspension the generator, a valuation grid based on an underlying asset and an annual cash flow model is constructed. An interpretation of the proposed method is also presented through calculation examples.