Optimal timing for generation investment with uncertain emission mitigation policy

European Transactions on Electrical Power (Impact Factor: 0.89). 01/2011; 21(1):1015 - 1027. DOI: 10.1002/etep.493


In view of the fact that different mechanisms for mitigating the CO2 emission have been employed or proposed in different countries or regions, and those already implemented are still in an evolutionary procedure, the future CO2 emission prices would be highly uncertain. Given this background, an effort is made for investigating the problem of generation investment decision-making in electricity market environment with uncertainties from the climate change policy for limiting the CO2 emission. According to the changing characteristics of the uncertain factors, the models of the fuel prices, electricity prices, and CO2 emission prices are respectively presented first. Next, under the existing real option approach (ROA) based methodological framework for the generation investment decision-making problem, a mathematical model accommodating multiple kinds of uncertainties and an efficient solving method are developed. Finally, the proposed model and method are illustrated by a numerical example with different scenarios. Copyright © 2010 John Wiley & Sons, Ltd.

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