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An improved mechanism for capacity payment based on system dynamics modeling for investment planning in competitive electricity environment

  • Assili, Mohsen
  • Javidi D.B., M. Hossein
  • Ghazi, Reza
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    Many countries have experienced restructuring in their electric utilities. This restructuring has presented the power industries with new challenges, the most important of which is long-term investment planning under uncertain conditions. This paper presents an improved mechanism for capacity payment. The mechanism has been investigated based on system dynamic modeling. In our proposed mechanism, generators will recover a part of their investment through capacity payment. While the payment for any plant remains constant during the operation period, it depends on the investment needed to build it. The main factors affecting long-term planning have been considered in our model. The approach can be used to investigate the effects of fixed as well as variable capacity payment in market investment. We used the probability density function of load as a new concept to calculate average market price. Delays in unit constructions, estimation of demand, and market capacity growth during construction periods have been included in the proposed algorithm as parameters, which affect the regulator's decision for changing capacity payment. The model can be used by regulators to investigate strategies that may affect the fluctuations in the market.

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    File URL: http://www.sciencedirect.com/science/article/B6V2W-4T53HR6-1/2/f698cac546b5287f71f0236e7976c307
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    Article provided by Elsevier in its journal Energy Policy.

    Volume (Year): 36 (2008)
    Issue (Month): 10 (October)
    Pages: 3703-3713

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    Handle: RePEc:eee:enepol:v:36:y:2008:i:10:p:3703-3713
    Contact details of provider: Web page: http://www.elsevier.com/locate/enpol

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    1. Olsina, Fernando & Garces, Francisco & Haubrich, H.-J., 2006. "Modeling long-term dynamics of electricity markets," Energy Policy, Elsevier, vol. 34(12), pages 1411-1433, August.
    2. Ford, Andrew & Vogstad, Klaus & Flynn, Hilary, 2007. "Simulating price patterns for tradable green certificates to promote electricity generation from wind," Energy Policy, Elsevier, vol. 35(1), pages 91-111, January.
    3. de Vries, Laurens & Heijnen, Petra, 2008. "The impact of electricity market design upon investment under uncertainty: The effectiveness of capacity mechanisms," Utilities Policy, Elsevier, vol. 16(3), pages 215-227, September.
    4. Arango, Santiago, 2007. "Simulation of alternative regulations in the Colombian electricity market," Socio-Economic Planning Sciences, Elsevier, vol. 41(4), pages 305-319, December.
    5. Dyner, Isaac & Larsen, Erik R., 2001. "From planning to strategy in the electricity industry," Energy Policy, Elsevier, vol. 29(13), pages 1145-1154, November.
    6. Ford, Andrew, 1999. "Cycles in competitive electricity markets: a simulation study of the western United States," Energy Policy, Elsevier, vol. 27(11), pages 637-658, October.
    7. Ford, Andrew, 2001. "Waiting for the boom: : a simulation study of power plant construction in California," Energy Policy, Elsevier, vol. 29(11), pages 847-869, September.
    8. Gary, Shayne & Larsen, Erik Reimer, 2000. "Improving firm performance in out-of-equilibrium, deregulated markets using feedback simulation models," Energy Policy, Elsevier, vol. 28(12), pages 845-855, October.
    9. Sterman, John D., 1988. "Modeling the formation of expectations : The history of energy demand forecasts," International Journal of Forecasting, Elsevier, vol. 4(2), pages 243-259.
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