GENCO´s long term expansion model in a competitive electricity market

Liberalization and privatization in the electricity industry have led to increased competition. At the same time, generation companies are now exposed more than ever to risk and uncertainties which they cannot pass through to their customers in the form price increases as in a regulated environment. The central challenge for electricity generators is to maximize profits under uncertainty. But this optimization is not possible without a thorough understanding of long term expansion planning and competitors´ behavior. In this paper a long-term expansion model (excluding hydroelectric plants) for a generation company operating in the deregulated electricity industry is presented. The model takes into account uncertainties such as electricity demand, fuel cost, pricing, expansion rate and investment under different scenarios and time periods. Numerical examples are provided.