A Practical Application of Real Options Under the Regulatory Investment Test for Transmission
5 May 2011
By Ann Whitfield, et al.
This report summarizes analysis undertaken by NERA on behalf of Grid Australia with respect to the calculation of option value as part of the evaluation of alternative transmission investments. The analysis was prompted by the new requirement under the National Electricity Rules (NER) to include the option value of transmission investments as part of the assessment of net market benefit under the Regulation Investment Test for Transmission (RIT-T), in cases where it is expected to be material. Specifically, NERA was asked by Grid Australia to provide a practical example of the calculation of option value and the incorporation of option value within the RIT-T assessment.
