|
Research
Publications
Prospective
Students
Events
People
Search
Seminars
Links
Home |
2003-04 Seminars
Investment
in U.S. Electric Utilities under Regulation and Natural Gas Price
Uncertainty: Timing of Plant Retirement and New Technology Choice
Peter
Reinelt/Fredonia
College and David Keith/CMU EPP
Abstract
Electric utility managers confront
impending replacement of an aging coal generation fleet in a business
environment characterized by volatile natural gas prices and uncertain
future regulation of greenhouse gases and conventional pollutants.
Generation technology choice and the timing of investment are examined
with a stochastic dynamic programming model, which minimizes the present
value of future power generation costs. Regulatory uncertainty combined
with irreversible investment decisions creates an incentive to delay
coal plant retirement with associated power generation cost and
pollution consequences. The programming model provides a platform to
examine these expected welfare loses arising from regulatory
uncertainty. Conversely, irreversible investment prior to resolution of
regulatory uncertainty can impact the effectiveness of eventual
regulations.
|
