A time consistent risk averse three-stage stochastic mixed integer optimization model for power generation capacity expansion
M. Bertocchi and
Energy Economics, 2016, vol. 53, issue C, 203-211
We propose a multi-stage stochastic optimization model for the generation capacity expansion problem of a price-taker power producer. Uncertainties regarding the evolution of electricity prices and fuel costs play a major role in long term investment decisions, therefore the objective function represents a trade-off between expected profit and risk. The Conditional Value at Risk is the risk measure used and is defined by a nested formulation that guarantees time consistency in the multi-stage model. The proposed model allows one to determine a long term expansion plan which takes into account uncertainty, while the LCoE approach, currently used by decision makers, only allows one to determine which technology should be chosen for the next power plant to be built.
Keywords: Price-taker producer; Power generation capacity expansion; Long term planning; Time consistency; Three-stage stochastic mixed integer optimization (search for similar items in EconPapers)
JEL-codes: C61 C63 D24 Q41 Q42 L94 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:53:y:2016:i:c:p:203-211
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