Simulation-based Validation of Valuation Methods for Power Plant Investments

As the world shifts towards a decentralized energy system with lower CO2 emissions, primarily powered by renewable sources, there is a pressing need to adapt financial valuation methods for the new requirements of renewable power plant technologies. This thesis addresses the gap in quantitative tools needed to evaluate the plausibility of these valuation methods, which have traditionally been assessed through empirical-qualitative studies.

Introducing a simulation-based benchmark, this research uses the Xerox method to develop a tool that verifies the realism of valuation methods by comparing their Key Performance Indicators (KPIs) with reference values from a simulation model. The study examines the Discounted-Cash-Flow (DCF) method and Real Option Analysis (ROA), providing the first quantitative evaluation of these methods applied to power plants. The findings highlight the dependency of valuation result quality on the proximity of marginal costs to the mean Market-Clearing-Price (MCP), offering new insights into the validity of existing criticisms and affirming the credibility of certain valuation approaches.