Using the proper analysis technique can have a serious bottom line impact when valuing a large multi-million dollar asset.

This one-day program is designed to provide an understanding of the various approaches used to value energy and electricity assets as real options. Increase your firm's profits with proven practical techniques for: 1) hourly and forward electric price strategies; 2) determining optimal spark spread boundaries; 3) using ancillary services as real options; and 4) measuring the hidden value in uncertainty and optionality. View Past Seminar Attendees

Understand these 7 important issues:

1. The pros and cons of net present value (NPV), decision analysis (DA), and real options (RO) valuation techniques.
2. Understand the deficiencies of marginal cost valuation, and lean how to develop a real-options approach based on forward price simulation of fuel and energy markets.
3. The most common financial pricing models including start-to-finish development of the GBM and Mean Reversion (Jump Diffusion) models which will be defined, regressed, and simulated.
4. The relationship between financial options and real options, and the three methods of valuing options – Black Scholes, binomial trees, and Monte Carlo simulation.
5. How Black Scholes, binomial trees, and Monte Carlo simulation method are applied to value natural gas storage, electric generation, and energy portfolio assets.
6. The role of volatility, portfolio considerations, and risk management implications to asset pricing and valuation.
7. How to value generation assets using real option competitive price analysis

Seminar Agenda

1. Introduction to Deregulated Market Analysis

a. Why Volatility Modeling?

b. A Brief Comparison of Modeling Techniques

c. Successful Valuation Strategy In Deregulated Markets

2. The Fundamentals of Valuation Techniques

a. Net Present Value Analysis (NPV)

b. Decision Analysis (DA)

c. Real Options Analysis (RO)

3. The Fundamentals of Real Options Analysis

a. Introduction to Real Options Analysis

i. Black-Scholes, Binomial Trees, and GARCH Models

Application: Comparing the results of Black-Scholes, Binomial Trees and Simulation in Valuing Distributed Generation

Detailed Example Using Three Seperate Real Option Approaches to Value Energy Assets

b. Details of Option Model Implementation

i. A Generating Unit as a Strip of Options on a Btu Spread

ii. Measuring Hidden Value in Uncertainty and Optionality

Application: Comparing Power Plant Value from ProSym Marginal Cost Analysis vs. Real Option Competitive Price Analysis

Example Comparing Base-load, Mid-Merit and Peaking Units

c. Monte Carlo Simulation of Stochastic Prices

i. What is Volatility

ii. Modeling Volatility

1. Quantitative Models –

a. Geometric Brownian Motion

b. Mean Reversion

c. Markov Regime Switching

d. Jump Diffusion

e. AR(3) GARCH(1,1)

2. Implied Volatility form Black-Scholes Model

iii. Estimating Volatility

1. Software Considerations

2. Choosing Explanatory Variables

3. Model Selection Criteria

4. Misspecification

d. The Challenge of Forward Price Simulation

e. Mark-to Market via Forward Price Hammers

f. Hourly Unit Commitment and Dispatch Under Price Uncertainty

Application: Developing Optimal Spark Spread "Turn On" and "Turn Off" Boundaries; Using the Unit Commitment Model to Determine an Optimal Operation Schedule

i. Incorporating Engineering Constraints

ii. Incorporating Rational Dispatch Behavior

Application: Valuing Generation Assets Using Real Option Competitive Price Analysis; Step-by-Step Valuation

Example for a Portfolio of Generation Assets

Application: Valuing Ancillary Services

Example of Valuing Expected Revenue from Southern California Ancillary Services Markets

Application: Minimizing Price Risk through Operational Design Flexibility

Example of Valuing the Option of Installing Duel Fuel Capability

Your Instructor

Kenneth Skinner, Ph.D. – Dr. Skinner is Vice President and Chief Operating Officer of Integral Analytics, a retail energy consulting and software development firm focusing on valuation of Demand-Side Management (DSM) programs, customer targeting for marketing and engineering applications, spatial load forecasting and feeder load-at-risk analysis, and traditional market research.  Dr. Skinner has 15 years of energy industry experience including 5 years as a Derivative Structuring Manager for Sempra Energy Solutions, a national energy supplier, focused on developing retail commodity supply strategies including portfolio risk management, hedging strategy, and least-cost supply opportunities.

Having worked with several energy consulting companies including Summit Blue Consulting, RDI Consulting and PHB Hagler Bailly, Dr. Skinner has significant experience in economic analysis and modeling of energy demand, forward energy prices, financial derivatives, transmission and pipeline capacity, natural gas storage, and generation assets using econometric time-series and cross-sectional analysis, statistical methods, optimization principles, real option valuation techniques; Structured valuation of distributed generation and electricity and natural gas commodity transactions, including demand response; Financial risk assessment and valuation of energy hedging strategies and market potential of new business ventures. He is fully trained in econometric methods, engineering principles, organizational development, optimization, and valuation techniques and has extensive experience with various software packages including Visual Basic, C++, SAS, SPSS, Crystal Ball, Matlab, GAMS, IREMM and ProSym.

Who Should Attend this Seminar?

Electric utilities, generators, marketers and industrials; corporate planners, economists, rate making staff, energy and electric power executives; government regulators; traders & trading support staff; marketing, sales, purchasing & risk management personnel; accountants & auditors; plant operators, and engineers.

Prerequisites

This fundamental-to-advanced level group live seminar has no prerequisites. No advance preparation is required before the seminar.

Why Choose PGS?

Since 1996, PGS seminars have been known for their clear explanations and in-depth content. Register for a PGS program today, and team up with the leader in electric power and energy education. Over 3,000 energy and financial professionals have already attended PGS's proven courses. View Past Seminar Attendees

Prices

Please call 412-521-4737 for pricing information.

CPE Credits

This group live seminar is eligible for 8.0 CPE credits. Be aware that state boards of accountancy have final authority on the acceptance of individual courses for CPE credit. As of January 1, 2002, sponsored learning activities are measured by program length, with one 50-minute period equal to one CPE credit. One-half CPE credit increments (equal to 25 minutes) are permitted after the first credit has been earned in a given learning activity. You may want to verify that the state board from which your participants will be receiving credit accept one-half credits.

PGS  Energy Training is registered with the National Association of State Boards of Accountancy (NASBA)  as a sponsor of continuing professional education  on the National Registry of CPE Sponsors. State boards of accountancy have final authority on  the acceptance of individual courses for CPE  credit. Complaints regarding registered sponsors  may be addressed to the National Registry of  CPE Sponsors, 150 Fourth Avenue North, Suite 700, Nashville, TN, 37219-2417. Web site: www.nasba.org. CPAs interested in attending any seminars  should contact our offices for details on CPE credits granted and any prerequisite requirements.