Case Study: L. E. Peabody & Associates achieves accurate real-option valuations and power-plant risk profiles with Palisade's @RISK

L.E. Peabody uses @RISK for Strategic Decisions at Electric Power Generating Facilities

L.E. Peabody & Associates, an economic consulting firm that advises owners and prospective buyers of coal- and natural gas-fired power plants, needed to value “real options” and quantify plant risk amid uncertain future power and fuel prices and operators’ on/off dispatch decisions. To tackle this, L.E. Peabody & Associates used Palisade’s @RISK Excel add-in to incorporate market price uncertainty into their financial models.

Using Palisade’s @RISK Monte Carlo simulation, the firm sampled correlated power and fuel price scenarios, modeled hourly economic dispatch, and converted each scenario into discounted free cash flows to produce a probability distribution of plant values. The Palisade solution yielded a clear expected (mean) real option value plus downside and upside ranges—measurable outputs that supported merger & acquisition analysis, retirement planning, hedging strategies and capital expenditure decisions.

L.E. Peabody & Associates

Brian Despard

Vice President