Finding and applying the efficient frontier.
Buyers of power-plant assets use a number of tried-and-true approaches to asset valuation, including discounted cash flow and option-pricing models. While the valuation approaches employed generally are sophisticated, they focus almost exclusively on individual assets. Conspicuously missing is consideration of the asset portfolio as a whole. For illustrative purposes, we performed an assessment of a basic new power-plant portfolio. The results are well suited for general risk analysis and risk management, portfolio planning and restructuring, power plant acquisition, development, and divestiture.