Composite Evaluation of Replacing Small Generation Units with Large Ones in the Electricity Sector in China

This paper applies two methods to evaluate the economic effects of the policy of "replacing small units with large ones (RSWL)," one is Discounted Cash Flow (DCF) method which performs a technology economic analysis both from the financial and the economic perspectives, the other one is to use the Real Option theory to study the lagging investment problem of the big unit. Through an illustrative example, three alternatives of replacing 200 MW units with 600 MW units are compared. The sensitivity analysis is made to evaluate the impact of uncertain factors on the financial and economic indicators of the execution of RSWL. The environmental costs are also taken into account in the comparison and analysis. The proposed methods can aid the decision-making in the implementation of the policy of RSWL from a wider perspective and it can be used to evaluate the economic benefits and costs of the RSWL projects.