Coordination of flexible generation and transmission investments under uncertainty

Abstract

The liberalization of power markets has led to a paradigm shift in the scope of the generation and transmission expansion planning. The assessment of this issue is complex because of the uncertainties that usually determine the long term evolution of the market. Moreover, and from the point of view of regulators and policy makers, an optimal assessment is of great interest because the lack of coordination between two types of investments can jeopardize competition and efficiency in the whole sector. In this regard, the literature suggests the use of holistic approaches, which are a suitable to address risks associated to the coordination of investments in the power market. This allows regulators to identify an efficient investment alternative, even in scenarios in which the uncertain variables evolve unfavorably. In that context, this paper proposes an improved method to assess the joint Transmission and Generation Expansion Planning segments, considering the inherent flexibility of generation investments, using the Real Options Valuation approach, calculated with the Least Squares Monte Carlo.