Generation Capacity Expansion Planning in Deregulated Electricity ...

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Generation Capacity Expansion Planning in Deregulated Electricity ...

salvage value will also reduced. But if cost recovery period is increased from 7-years to 8-years, the

investment shifts towards cheaper generation plants like coal to earn more revenue and profit. But

such plants have high capital cost, so during the cost recovery period of these units, only few new

units will be installed with discrete size, so all budget will not get used, and hence IRR get reduced

(Fig. 24).

Total Profit, $

3.0E+08

2.9E+08

2.8E+08

2.7E+08

2.6E+08

2.5E+08

2.4E+08

2.3E+08

5 6 7 8

Cost Recovery Time, Years

Fig. 24 Effect of financial risk (Cost recovery time) on firm’s profit with MILP framework

3.4 Conclusions

This chapter presents a new planning framework for investor firms in the generation sector taking into

consideration investment decisions specified to discrete unit sizes only. A mixed-integer linear

programming model is developed that analysis various scenarios of budget and price increase to

examine their impact on the optimal plan.

It is observed from the studies that the optimal plan of the firm with discrete unit sizes yields a

higher IRR as compared to that obtained in Chapter-2. It can also be concluded that if electricity

prices are expected to increase, then firms with discrete unit size options are expected to invest more

even if their budget are limited.

42

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