Generation Capacity Expansion Planning in Deregulated Electricity ...

Generation Capacity Expansion Planning in Deregulated Electricity ...

1.1 Background

Chapter 1


It is difficult to imagine our life in present times without the presence of electric power. Its forms and

modes of usages are increasing day-by-day because it is the easiest and cheapest transportable form of

energy. But as the demand of electric power keeps on increasing every day, a good strategic planning

for the growth of the power system is critical for our tomorrow. There is a need to build new

resources in the form of generation plants and transmission lines while considering the effects of

these new resources on power system operations, market economics and the long-term dynamics of

the economy.

With deregulation of the electricity market worldwide, the strategies for generation capacity

expansion planning are not the same anymore. Earlier, generation planning was strongly correlated to

future demand growth projections, reliability concerns of the system as a whole and minimization of

the total investment costs. Such a planning exercise was typically undertaken by the central planner

and the objective was minimization of the total system-wide plan costs while meeting the forecasted

peak demand growth and energy demand growth. Associated constraint such as ensuring a specified

system reliability level, would also be considered in the planning framework.

In the context of deregulated electricity markets, the exercise of generation planning has undergone

a paradigm shift. The first stage of generation planning is now undertaken by the individual investors.

These investors see investments in generation capacity as an increasing business opportunity because

of the increasing market prices. Therefore, the main objective of such a planning exercise, carried out

by individual investors, is typically that of long-term profit maximization. The main driving force of

such a planning exercise is the forecast of electricity price trends and the return on investments [1],


The second stage of the planning process is the responsibility of a central authority which receives

the individual plans from all investors. Such an entity usually has access to information on available

transmission resources and incorporates the Independent System Operator (ISO) specified security

and reliability standards and guidelines. The outcome of the second stage is the approval or nonapproval

of the proposed investments and in some cases there may be iterative mechanisms between

the two stages which provide the individual investors an opportunity to revise their investment offers


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