Power Generation and Transmission Expansion Planning under Uncertainty considering Flexibility in Generation Investments

Abstract

The process of liberalization of power markets has led to a paradigm shift in the joint expansion planning of the generation and transmission segments. The assessment of this problem is even more complex when considering the uncertainties that usually determine the long-term evolution of the system. 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 the two types of investment can jeopardize competition and efficiency in the whole electricity sector. In this regard, the literature suggests the use of holistic approaches, which necessarily evaluate the risks associated with the coordination of investments in the power system, in order to allow regulators to identify an efficient investment alternative, considering scenarios in which the uncertain variables evolve unfavorably. In this context, this paper test a method to assess the joint expansion planning of the generation and transmission segments, considering the inherent flexibility of generation investments, using the Real Options Valuation approach, calculated with the Least Squares Monte Carlo. In order to validate this method, a case study has been simulated. It is shown that the consideration of investments’ flexibility allows increasing the system-wide social benefit through the coordinated planning of the generation and transmission segments.