Generation Capacity Expansion Planning in Deregulated Electricity ...

Generation Capacity Expansion Planning in Deregulated Electricity ...

Chapter 2

A Generation Planning Model for Investor Firms and Financial


In this work a modeling approach is proposed that pertains to an individual investor participating in

the first-stage exercise of generation planning. The mathematical framework developed herein is a

dynamic, linear programming model which evaluates the effects of internal rate of return (IRR),

electricity market prices and budget constraints on an investor’s financial parameters and its optimal

investment decisions.

This work also touches upon the issue of energy dispatch and optimal capacity factor of different

generation technologies at the planning stage itself so as to maximize the total profit of the investor.

The proposed model is novel in the sense that the planning horizon is split into plan sub-periods so as

to minimize the overall risks associated with long-term plan models, particularly in the context of


2.1 Features of the Developed Model

2.1.1 General Characteristics

This study examines the investment planning problem from the prospective of an independent

investor willing to invest in the power sector. It analyzes the related aspects of investment planning

by considering rate of return variations as well as market price and budget scenarios. The investor’s

main criterion in arriving at the optimal decisions is maximization of its profits. The decision

variables are optimal sizing and timing of investments, while taking into consideration various


2.1.2 Technologies

It is assumed in this chapter that the investor is willing to invest in three different technologies

namely gas-fired, coal-fired and combine cycle plants. It should be pointed out that the model

developed is generic enough to accommodate other technologies with certain modifications in the

operational constraints. For example, if hydro resources are considered than, there is a need to include


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