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Strategic valuation of efficient and well-timed network investments underuncertain electricity market environment has become increasingly challenging,because there generally exist multiple interacting options in theseinvestments, and failing to systematically consider these options can lead todecisions that undervalue the investment. In our work, a real options valuation(ROV) framework is proposed to determine the optimal strategy for executingmultiple interacting options within a distribution network investment, tomitigate the risk of financial losses in the presence of future uncertainties.To demonstrate the characteristics of the proposed framework, we determine theoptimal strategy to economically justify the investment in residentialPV-battery systems for additional grid supply during peak demand periods. Theoptions to defer, and then expand, are considered as multi-stage compoundoptions, since the option to expand is a subsequent option of the former. Theseoptions are valued via the least squares Monte Carlo method, incorporatinguncertainty over growing power demand, varying diesel fuel price, and thedeclining cost of PV-battery technology as random variables. Finally, asensitivity analysis is performed to demonstrate how the proposed frameworkresponds to uncertain events. The proposed framework shows that executing theinteracting options at the optimal timing increases the investment value.

Multi-Stage Compound Real Options Valuation in Residential PV-Battery Investment