Real Options "in" Projects and Systems Design ... - Title Page - MIT

35After 1980, there are relatively fewer articles on the topic regarding facilities design andplanning of big river basins. The interests shift more to operating policies of reservoirs,water supply, water quality, environmental issues. This trend is coherent with the trend inthe Western countries to stop building or even tear down dams, in favor of moreenvironmental considerations rather than short term gain on agricultural and hydropowerbenefits of big water projects. It is also partly because the art had been pretty maturethat developments in water resource planning theory became less concerned with thedesign of water resource facilities. Another reason for this is that most economical sitesfor water projects have almost all been built in North America or Europe, the remainingsites are marginal and economical benefits can not overweigh the environmental costs tosociety. With the decrease of interest in the construction of big water river projects, theliterature on this topic has been less, correspondingly. William (1996) argued two basicapproaches of water resources planning – that of the Corps of Engineers and otherconstruction agencies and that of the U.S. Environmental Protection Agency (EPA) andother regulatory agencies - are both incomplete. The requirements of the variousregulatory approaches are making it almost impossible to construct major facilities for anypurpose, and water resource analysts were reluctant to challenge them. A morecomplete approach is needed to reach better results.The development of big dams in developing countries has not slowed down. Sinha, Raoand Lall (1999) presented a screening model for selecting and sizing potential reservoirsand hydroplants on a river basin. A linked simulation-optimization framework is used. Theobjective function is to meet annual irrigation and hydropower demands at prescribedlevels of reliability. Sizing of reservoirs and hydroplants, and evaluation of objectivefunction and constraints and their derivatives are done as part of simulation. Theformulation is applied to river basins in India. Sinha, Rao, and Bischof (1999) presentedan optimization model for selecting and sizing potential reservoir and hydropower plantsites on river basins. The model used a behavior analysis algorithm that allows operationof the reservoir system with realistic operating policies. The model is developed in thecontext of river basins in India. Dahe and Srivastava (2002) extended the basic yield