A comprehensive framework for evaluating nonutility generation projects

With the rapid increase of electricity demand in the developing countries, there is a need for nonutility generation investment that cannot be met by the government finance. In Asia, the BOT (build, operate and transfer) approach is emerging as the dominant form of nonutility generation arrangement. In this paper, a comprehensive framework for evaluating BOT-type nonutility generation projects is presented. The framework provides a useful tool in assisting decision-making and contract negotiation. Two kinds of uncertainties of different nature must be considered in project assessment. One type is beyond participants´ control, such as error in demand forecast, change in fuel price, or interest rate, etc. The other type is due to participants´ actions in operation in response to changing economic situations. In our framework, game theory is used to model the participants´ actions and the Monte Carlo method is used to model the other uncertainties. An example is presented to illustrate the effectiveness of the proposed framework