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ID:
150066
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| Summary/Abstract |
Classical deterministic models applied to investment valuation in distribution networks may not be adequate for a range of real-world decision-making scenarios as they effectively ignore the uncertainty found in the most important variables driving network planning (e.g., load growth). As greater uncertainty is expected from growing distributed energy resources in distribution networks, there is an increasing risk of investing in too much or too little network capacity and hence causing the stranding and inefficient use of network assets; these costs are then passed on to the end-user. An alternative emerging solution in the context of smart grid development is to release untapped network capacity through Demand-Side Response (DSR). However, to date there is no approach able to quantify the value of ‘smart’ DSR solutions against ‘conventional’ asset-heavy investments. On these premises, this paper presents a general real options framework and a novel probabilistic tool for the economic assessment of DSR for smart distribution network planning under uncertainty, which allows the modeling and comparison of multiple investment strategies, including DSR and capacity reinforcements, based on different cost and risk metrics.
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| 2 |
ID:
163536
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| Summary/Abstract |
We study the effect of the price and price volatility of natural gas on investment in electricity capacity in two technology scenarios: (1) dual-fuel units that use natural gas and diesel; and (2) a mix of single-fuel plants that use coal or natural gas. We develop a two-stage (capacity and operation) model and derive analytical solutions for both scenarios. Based on the observed log-normal distribution of the natural gas price, we show that optimal capacity investment increases moderately with natural gas price volatility, countering a commonly held view that fuel cost uncertainty tends to discourage capacity investment. Thus, higher volatility of the natural gas price tends to reduce the 'missing money' problem. We use Texas data to show that higher gas price volatility implies higher profits and consumer surplus in the first scenario, even when the per MWh diesel cost is much higher than the expected value of the per MWh gas cost. In the second scenario, firms invest only in gas capacity, unless the per MWh coal cost is significantly below the expected per MWh gas cost, thus explaining the popularity of gas generation.
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