Generation Capacity Expansion Planning in Deregulated Electricity ...

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

correspond**in**g 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 obta**in**ed is IRR*=33.12%.

Table IV provides the firm’s optimal **in**vestment plan over the 25-year plann**in**g horizon. It can be

observed that the firm concentrates its **in**vestment decisions at the beg**in**n**in**g of each plan sub-period

so as to allow the maximum possible time for cost recovery from the **in**vestment.

TABLE IV GROSS OPTIMAL INVESTMENT DECISIONS IN THE BASE CASE

Year of Installation Gas-Fired (MW) Coal-Fired (MW) Comb**in**e-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 f**in**ancial 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 plann**in**g

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

f**in**ancial balance s**in**ce the revenue earn**in**gs are lower than total costs. For higher values of IRR, the

salvage value rema**in**s more or less constant.

18