A systematic approach for generation expansion planning using system dynamics
Abstract
Long-term planning of the electricity generation is a subject of vital importance to secure the appropriate functioning of the society. Generation planning for the electrical industry faces new challenges associated with cost efficiency and environmental impact of electricity generation. For this reason, there is a need for a better understanding of the impacts of changes such as demand growth and environmental regulations on the long-term market behavior of the electricity market. Understanding the electricity market’s behavior is a significant matter for investors, regulators and consumers in order to divert undesired conditions, such as reserve margins lower than 15% or construction of generation capacity in excess of the electricity market demand, which could undermine the appropriate performance of the electricity market. This study aims at developing a framework for the analysis of the long-term (20-year) behavior of the wholesale electricity market and focuses on the generation component of the wholesale electricity market. This research was developed using a system dynamics (SD) model, given its ability to capture the dynamic behavior of the market components during the simulation horizon. The Mean Reverting process and the Bounded Rationality Hypothesis approaches were used to simulate the stochastic behavior of the demand growth rate and the investors’ behavior when considering the return on investment. A Fuzzy-logic approach was used to determine the spot price of electricity based on market conditions. In addition, a financial analysis was performed to assess the profitability of the investment in electricity generation capacity. The SD model developed in this study was demonstrated within the context of a case study of the wholesale electricity market in Indiana, USA. Five different scenarios were used to perform the analysis: (1) linear demand growth rate, (2) stochastic demand growth rate, (3) carbon emission tax, (4) discount rate and, (5) required rate of return. The analysis of different demand growth rate scenarios showed that the reserve margin of the wholesale electricity markets could experience a cyclical behavior due to the lag between the time when investments are needed and the time it takes to the investor to perceive the need in the electricity market trend. In addition, higher demand growth rates triggered sudden and longer periods of lower reserve margin, and a larger proportion of investment in gas turbine (GT) power plants, since investors have limited time to adjust their market perception and take proactive actions. The reserve margin fell below the 15% reference level more drastically for the stochastic demand growth rate scenario than for any other scenarios considered in this study. The remaining scenarios did not show cyclical behavior of the reserve margin. The reserve margin for these scenarios tended to revert around a specific reserve margin level. In the carbon emission tax scenario, there was an increase in the proportion for investment towards construction of GT power plants, as a result of lower operating costs for GT generation units compared to coal generation units. An increase in either the discount rate or the required rate of return decreases the proportion of investment in GT generation units compared to investment in coal generation units. The limitations of the study are the following: (1) the model developed focuses exclusively on the supply side of the electricity market, (2) market differentiation among competing firms is not considered, and (3) the transmission system cost and constraints are not considered in the simulation model.
Degree
M.S.C.E.
Advisors
Abraham, Purdue University.
Subject Area
Energy
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