Using Distributed Resources to Manage Risks Caused by Demand Uncertainty
AbstractThis paper presents a method to calculate the cost of satisfying transmission and distribution (T&D) system capacity needs as a function of investment modularity and lead-time. It accounts for the dynamic nature of demand uncertainty, the decision-maker's risk attitude, and the correlation between costs and firm profits. Results indicate that the modularity and short lead-times associated with the distributed resources can increase their attractiveness in comparison to long lead-time, large-scale T&D investments. Results also suggest that distributed resources can operate as a type of "load growth insurance" if demand growth is positively correlated with profits (so that costs are incurred when profits are high) and if the distributed resource costs are part of a larger portfolio that cannot be diversified.
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Bibliographic InfoArticle provided by International Association for Energy Economics in its journal The Energy Journal.
Volume (Year): Volume 18 (1997)
Issue (Month): Special Issue ()
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- Heikki Kemppi & Adriaan Perrels, 2003. "Liberalised Electricity Markets - Strengths and Weaknesses in Finland and Nordpool," Research Reports 97, Government Institute for Economic Research Finland (VATT).
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