1. CTMS Annual Retreat 2009 “Making connections” Dalia Patino Echeverri, Assistant Professor of Energy Systems and Public Policy Nicholas School of the Environment

2. Bogotá - Colombia

5. Background BS. Industrial Engineering MS. Industrial Engineering (Operations research and statistics) Ph.D. Engineering and Public Policy (CMU) Postdoc. Decision Making Under Uncertainty – Climate Change

6. Teaching Duke  Modeling for energy systems Optimization & simulation models  Markets for Power  Environmenta Lifecycle Assessment and Decision Making Before  Probability theory  Probabilistic models  Statistics

7. Research interests Decision making under uncertainty for climate change Focus on applications of the theory of options valuation Considering a wide arrange of abatement, mitigation, and adaptation strategies

8. Options theory for climate decisions – Real options Investment projects for emissions abatement provide a stream of call options on “emissions reductions” For example: Developing the infrastructure to integrate renewable energy to the current power system can be seen as equivalent to buying the option to get carbon-free power at a fixed cost –the cost of developing such infrastructure The challenge: correctly characterizing the managerial flexibility of the investment projects and the stochastic processes followed by the key variables

9. Options theory for climate decisions – Real options(Cont.) The research: Examining all the details of a wide variety of abatement/mitigation/adaptation actions will allow a better understanding of the changing costs and benefits of these actions and the corresponding value of pursuing them

10. Options theory for climate decisions – Exchanging one risky project for another -Inaction entails risks and there is no abatement/mitigation/adaptation action without risks -There is no equivalent to “risk free rate” in the context of climate change (nothing like depositing money in a insured bank account) -Costs and benefits are non monetizable

11. Options theory for climate decisions – Exchanging one risky project for another (cont) The research An extension of the theoretical framework of the method to valuing the option of “exchanging one risky asset for another” Analysis of distributions of costs and benefits, and managerial flexibility for a wide range of abatement/mitigation/adaptation (will allow a consistent comparison of the risks and a proposal for a framework that provides the value of having the alternative of exchanging one risk for another when necessary

12. Examples of past and current work

13. Policy mechanisms to reduce emissions from power plants There is a need for investment in new electricity generating capacity (and upgrading/replacement of existing generating fleet). (EIA: ~40 GW of new capacity by 2010, 650GW by 2030) How can policy makers minimize the chances of: Locking in a path of high CO2 emissions Inefficient investments (High prices and emissions) Keep the power system reliable Promote clean energy in the world Prevent international conflicts and dangerous nuclear proliferation

14. Other policies affecting electricity ind Preventing blackouts: Operational reliability, pricing, procurement Strategic behavior and competition in the wholesale electricity market Adequacy of transmission infrastructure: Risk management Incentives for Merchant Transmission Investment?

15. Wind energy Determining optimal additions of wind power capacity and transmission capacity for a region that seeks to comply with a RPS  Tradeoff between high quality wind sites – far from the load and low quality wind site near the load  GIS based optimization  Time series analysis  Probabilistic models

16. Other questions regarding climate change The true cost of renewables Storage Rapid and deep fluctuations (<10secs from 0 to above nameplate) The value of R&D of far-fetched (morally dubious) alternatives: Geo-engineering to enhance albedo Wireless power transmission The comparison of alternatives with different risk-profiles CCS vs EGS

17. Thank you dalia.patino@duke.edu