Grid-based electrification programmes involve irreversible transmission line investments that
can be delayed by temporarily resorting to decentralized powet supply technologies. In this
context, decision-makers face the difficulty that the future evolution of demand and, thus, the
returns from postponing the transmission line investment are uncertain. This imposes an
opportunity cost resembling the value of a financial call option. Therefore, standard option
valuation techniques can be applied to solve the problem of timing transmission line …

An important issue in the expansion of power supplies is the question of whether local
supplies should be served from an integrated network or from isolated plants. Conventional
analysis would consist of a comparison of the present-value costs of building and operating
a transmission line plus the marginal cost of centrally generated electricity, versus the
present-value capital plus operating costs of a local generation alternative. This is
appropriate, however, only in cases in which the load to be served remains constant. With …