Generation Capacity Expansion Planning in Deregulated Electricity ...

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Generation Capacity Expansion Planning in Deregulated Electricity ...

Fig. 1 shows the variation of J* with IRR for a range of IRR values. The optimal investment plan

corresponding to this IRR (denoted by IRR*) represents the Base Case solution, and is discussed in

detail. It can be seen from Fig.1 that the optimal IRR so obtained is IRR*=33.12%.

Table IV provides the firm’s optimal investment plan over the 25-year planning horizon. It can be

observed that the firm concentrates its investment decisions at the beginning of each plan sub-period

so as to allow the maximum possible time for cost recovery from the investment.

TABLE IV GROSS OPTIMAL INVESTMENT DECISIONS IN THE BASE CASE

Year of Installation Gas-Fired (MW) Coal-Fired (MW) Combine-Cycle (MW)

1 0 33 0

6 0 48 0

11 0 75 0

16 0 60 47

21 456 0 0

Table V summarizes the present value of the financial balance of the firm in the base case solution,

where the firm yields an IRR* of 33.12%. The total present value of its profit over the planning

horizon is 190.631 M$.

TABLE V PRESENT VALUE OF FINANCIAL BALANCE OF THE FIRM OVER PLAN HORIZON

Total revenue, M$ Total cost, M$ Total profit, M$

740.10 571.35 190.63

Fig. 2 shows a plot of the firm’s total cost, total revenue and salvage value, for a range of IRRs. It

is observed that when the firm’s IRR is low, the salvage value is an important parameter in its

financial balance since the revenue earnings are lower than total costs. For higher values of IRR, the

salvage value remains more or less constant.

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