Power system equipments investment decision-making under uncertainty: A real options approach

Power supply failures have caused major social losses in the information society in the present age. Such a loss is estimated up to approximately two trillion yen when a large power failure happens in a big city such as Metropolitan Tokyo. Therefore, it is necessary to provide some remedies such as a diagnosis of the power system equipments not only for preventing the system accident of the equipment beforehand from its failures but also for guarding the social cost from increasing. The objective of the paper is to provide the preliminary research on life cycle management. In this paper, net present value (NPV) analysis and real options approach (ROA) are employed in life cycle management in investment and maintenance of power supply systems in order to keep the continuous normal operation under uncertainty.