Flexible investment under uncertainty in smart distribution networks with demand side response: Assessment framework and practical implementation

Jonathan A. Schachter, Pierluigi Mancarella, John Moriarty and Rita Shaw

Energy Policy, 2016, vol. 97, issue C, 439-449

Abstract: Classical deterministic models applied to investment valuation in distribution networks may not be adequate for a range of real-world decision-making scenarios as they effectively ignore the uncertainty found in the most important variables driving network planning (e.g., load growth). As greater uncertainty is expected from growing distributed energy resources in distribution networks, there is an increasing risk of investing in too much or too little network capacity and hence causing the stranding and inefficient use of network assets; these costs are then passed on to the end-user. An alternative emerging solution in the context of smart grid development is to release untapped network capacity through Demand-Side Response (DSR). However, to date there is no approach able to quantify the value of ‘smart’ DSR solutions against ‘conventional’ asset-heavy investments. On these premises, this paper presents a general real options framework and a novel probabilistic tool for the economic assessment of DSR for smart distribution network planning under uncertainty, which allows the modeling and comparison of multiple investment strategies, including DSR and capacity reinforcements, based on different cost and risk metrics.

Keywords: Investment under uncertainty; Real options; Demand response; Network investment; Smart grid (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:97:y:2016:i:c:p:439-449

DOI: 10.1016/j.enpol.2016.07.038

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