Long-Term Planning of Electrical Distribution Grids: How Load Uncertainty and Flexibility Affect the Investment Timing

Marie-Cécile Alvarez-Herault, Jean-Pierre Dib, Oana Ionescu and Bertrand Raison
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Marie-Cécile Alvarez-Herault: Univ. Grenoble Alpes, CNRS, Grenoble INP*, G2Elab, 38000 Grenoble, France
Jean-Pierre Dib: Univ. Grenoble Alpes, CNRS, Grenoble INP*, G2Elab, 38000 Grenoble, France
Oana Ionescu: Univ. Grenoble Alpes, CNRS, Grenoble INP*, G2Elab, 38000 Grenoble, France
Bertrand Raison: Univ. Grenoble Alpes, CNRS, Grenoble INP*, G2Elab, 38000 Grenoble, France

Energies, 2022, vol. 15, issue 16, 1-27

Abstract: Due to the rise of smart grids, new players and services are emerging and can have an impact on the decision-making process in distribution networks, which, over the past decades, were only driven by linear demand growth with a low level of uncertainties. Nowadays, the evolution of distribution networks and investment decisions (conductors and transformers) can no longer be based solely on deterministic assumptions of load evolution since there is a high level of uncertainties related to the development of electrical loads such as electric vehicles. In this paper, we focus on the uncertainty of the peak power, key elements for triggering an investment, and the flexibility to choose between different topologies of electric networks. To solve this problem, we apply a real option approach and provide an analytical model with closed-form solutions that allows a full treatment of the dynamic aspects of the decision to reconsider the topology of the network. Moreover, through a comparative statics analysis, we infer the sensitivity of the option value to modify the network with respect to the volatility of the peak power, the associated investment cost or other types of costs of power losses, the growth rate, or the discount rate.

Keywords: real options; distribution network; irreversible investment; uncertainty (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2022
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