Switching Options in Peak Power Plants: Empirical Evidence

We analyze the real options to shutdown, startup and abandon peak power plants. We assume that the plants’ status for a given year is either ready to operate, in standby or retired. The analysis is made using data for 1,121 individual power plants for the period 2001–2009. The results indicate that plant managers have decision heuristics that take uncertainty into account in a manner consistent with real options theory.