Journal of Energy Markets

Real input-output energy-switching options

Roger Adkins and Dean Paxson


We provide quasi-analytical solutions to models for real options embedded in flexible energy facilities that have stochastic inputs and outputs with switching costs. We show the facility value and the optimal switching input and output triggers when the possibility for multiple switching between operating and not operating exists. The facility value and optimal shutdown triggers are also calculated when there is only a one-way switch between operating and suspension (which amounts to abandonment). An illustration is provided for a heavy crude oil production field that requires natural gas as an input, with shutdown and restart switching costs. More general applications in the energy field include the operational spark (and dark spark) spread with switching costs. It may be appropriate to extend these models to many manufacturing, distribution and transportation activities.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here