Generation expansion models for electric utilities under competition
Date
1998
Authors
Pazhayanur-Shanmukham, Subramaniam
Major Professor
Advisor
Min, K. Jo
Committee Member
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Abstract
There is an on-going trend by the electric utility industry to move to a competitive market from traditional regulated monopolies. Due to this trend, customers are free to choose their utility provider, leaving their present utility faced with the problem of recovering economically infeasible assets, termed as stranded cost. Given the stochastic nature of stranded cost, the traditional generation expansion plan is radically revised in this thesis. First, we mathematically formulate a general generation expansion planning model with stochastic stranded cost based on the Mean-Variance (M-V) method. Next, under some elementary assumptions on relations among projects over periods, we derive general formulae for covariances of profits, which enhance the implementability of this generation expansion planning model.
We provide managerial insights stating that, for projects with similar variance, negatively correlated projects provide less risk, than positively correlated projects. Alternatively another method to solve the capital investment decision problem for generation expansion is illustrated using chance constrained programming (CCP), a stochastic programming method. This method considers the price per unit of electricity to be normally distributed, and risk is quantified as the probability bound on minimum expected profit in each period. The thesis models the problem of capital investment decision making under risk in a framework specific to the electric utility industry.
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thesis