The report highlights the significant investment required in power generation facilities due to increasing global energy demand, harder-to-access natural resources, rising fossil fuel prices, higher legislative requirements for climate change mitigation, technological innovation, and replacement of aging facilities. The electricity utilities face challenges such as expensive sourcing, rising pressure from capital markets, privatization, deregulation, and anti-trust efforts. The demand for climate-friendly energy generation and the replacement of aging conventional generation facilities will lead to very large capital investments and planning efforts in the utility sector. The competitiveness of nearly all electricity utilities depends on meaningful ways of valuing these multi-billion euro investments. Traditional methods for investment decisions, such as net present value (NPV), are static approaches that do not accommodate flexibility and possible future scenarios. The report suggests that real options analysis is a more appropriate approach for valuing future investments in the power industry.
