Risk management in long term generation planning

Constraints on renewable energy production and CO₂ emissions are being imposed to generation companies (GENCOs) by growing environmental concern and compelling regulatory directives. These constraints impact on the economy of generation acting as a bias towards the adoption of novel generation technologies, mostly in the field of renewable energy generation. In the present work, the mathematical model of generation planning is presented aiming at the maximization of the net present value of the investment made in generation expansion. A general model is developed to find the present and the future generation mix of a given GENCO and the Lagrangian relaxation method is used to solve the ensuing large scale mixed integer programming problem. Although this problem is interesting in its own right, its results cannot be really useful to define a generation planning strategy unless the uncertainties in costs, prices, construction times are considered. For this reason a Monte Carlo simulation procedure is set up including an expansion planning computation at each step of the procedure. Results are presented with reference to an hypothetical GENCO, by employing reasonable data.