Generation Capacity Expansion Planning in Deregulated Electricity ...

Generation Capacity Expansion Planning in Deregulated Electricity ...

2.1.7 Assumptions Made in Modeling

• Adequate transmission resources are in place to transfer the power generated by the new

units to the demand locations. This assumption basically implies that the investor’s decisions

are not affected by transmission constraints. In a later chapter, we will consider the case

where this assumption is removed, and the presence of the transmission network will affect

the investor’s decisions.

• The investment decisions of the investors do not influence the electricity market prices. This

assumption ensures that no investor holds market power or is likely to hold market power

through large scale investments. This implies that the central planning authority, in its

coordination process, ensures a level playing field in the investment sector.

• The investor firm is the sole owner and operator of the plants- which means that the dispatch

decisions are taken by the firm and that the firm’s sell bids are always accepted in the market

2.2 Generation Investment Planning Model

2.2.1 Objective Function

The objective function is the maximization of the present worth of the total profit of the firm over the

plan period and the present worth of the salvage value that the firm will receive at the end of plan

period. This is given in (1) below:




k = 1



k ( 1+





k= 1 m

( m,


P ( 1+



J Objective function of the firm, $

Ap(k) Annual profit of firm in year k, $

A Discount rate, %

Svl(m,k) Salvage value of generating unit of technology m commissioned in year

k, $/MW

P Planning period, years



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