IDEAS home Printed from https://ideas.repec.org/a/gam/jeners/v15y2022i16p6084-d894514.html
   My bibliography  Save this article

Long-Term Planning of Electrical Distribution Grids: How Load Uncertainty and Flexibility Affect the Investment Timing

Author

Listed:
  • Marie-Cécile Alvarez-Herault

    (Univ. Grenoble Alpes, CNRS, Grenoble INP*, G2Elab, 38000 Grenoble, France)

  • Jean-Pierre Dib

    (Univ. Grenoble Alpes, CNRS, Grenoble INP*, G2Elab, 38000 Grenoble, France)

  • Oana Ionescu

    (Univ. Grenoble Alpes, CNRS, Grenoble INP*, G2Elab, 38000 Grenoble, France
    GAEL (Grenoble Applied Economy Laboratory), 1241 Rue des Résidences, 38400 Saint-Martin-d’Hères, France)

  • Bertrand Raison

    (Univ. Grenoble Alpes, CNRS, Grenoble INP*, G2Elab, 38000 Grenoble, France)

Abstract

Due to the rise of smart grids, new players and services are emerging and can have an impact on the decision-making process in distribution networks, which, over the past decades, were only driven by linear demand growth with a low level of uncertainties. Nowadays, the evolution of distribution networks and investment decisions (conductors and transformers) can no longer be based solely on deterministic assumptions of load evolution since there is a high level of uncertainties related to the development of electrical loads such as electric vehicles. In this paper, we focus on the uncertainty of the peak power, key elements for triggering an investment, and the flexibility to choose between different topologies of electric networks. To solve this problem, we apply a real option approach and provide an analytical model with closed-form solutions that allows a full treatment of the dynamic aspects of the decision to reconsider the topology of the network. Moreover, through a comparative statics analysis, we infer the sensitivity of the option value to modify the network with respect to the volatility of the peak power, the associated investment cost or other types of costs of power losses, the growth rate, or the discount rate.

Suggested Citation

  • Marie-Cécile Alvarez-Herault & Jean-Pierre Dib & Oana Ionescu & Bertrand Raison, 2022. "Long-Term Planning of Electrical Distribution Grids: How Load Uncertainty and Flexibility Affect the Investment Timing," Energies, MDPI, vol. 15(16), pages 1-27, August.
    • Handle: RePEc:gam:jeners:v:15:y:2022:i:16:p:6084-:d:894514
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1996-1073/15/16/6084/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1996-1073/15/16/6084/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lenos Trigeorgis, 1993. "Real Options and Interactions With Financial Flexibility," Financial Management, Financial Management Association, vol. 22(3), Fall.
    2. Matthew Gough & Sérgio F. Santos & Mohammed Javadi & Rui Castro & João P. S. Catalão, 2020. "Prosumer Flexibility: A Comprehensive State-of-the-Art Review and Scientometric Analysis," Energies, MDPI, vol. 13(11), pages 1-32, May.
    3. Luis M. Abadie & José M. Chamorro, 2011. "Valuing Expansions of the Electricity Transmission Network under Uncertainty: The Binodal Case," Energies, MDPI, vol. 4(10), pages 1-32, October.
    4. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    5. Štefan Bojnec & Alan Križaj, 2021. "Electricity Markets during the Liberalization: The Case of a European Union Country," Energies, MDPI, vol. 14(14), pages 1-21, July.
    6. Merton, Robert C., 1976. "Option pricing when underlying stock returns are discontinuous," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 125-144.
    7. Kucsera, Dénes & Rammerstorfer, Margarethe, 2014. "Regulation and grid expansion investment with increased penetration of renewable generation," Resource and Energy Economics, Elsevier, vol. 37(C), pages 184-200.
    8. Henao, A. & Sauma, E. & Reyes, T. & Gonzalez, A., 2017. "What is the value of the option to defer an investment in Transmission Expansion Planning? An estimation using Real Options," Energy Economics, Elsevier, vol. 65(C), pages 194-207.
    9. Ma, Yiju & Chapman, Archie C. & Verbič, Gregor, 2022. "Valuation of compound real options for co-investment in residential battery systems," Applied Energy, Elsevier, vol. 318(C).
    10. Pringles, Rolando & Olsina, Fernando & Garcés, Francisco, 2015. "Real option valuation of power transmission investments by stochastic simulation," Energy Economics, Elsevier, vol. 47(C), pages 215-226.
    11. Huilian Liao, 2019. "Review on Distribution Network Optimization under Uncertainty," Energies, MDPI, vol. 12(17), pages 1-21, September.
    12. Schachter, Jonathan A. & Mancarella, Pierluigi & Moriarty, John & Shaw, Rita, 2016. "Flexible investment under uncertainty in smart distribution networks with demand side response: Assessment framework and practical implementation," Energy Policy, Elsevier, vol. 97(C), pages 439-449.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pringles, Rolando & Olsina, Fernando & Penizzotto, Franco, 2020. "Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based method," Renewable Energy, Elsevier, vol. 151(C), pages 846-864.
    2. Penizzotto, F. & Pringles, R. & Olsina, F., 2019. "Real options valuation of photovoltaic power investments in existing buildings," Renewable and Sustainable Energy Reviews, Elsevier, vol. 114(C), pages 1-1.
    3. Ardian, Aldin & Kumral, Mustafa, 2020. "Incorporating stochastic correlations into mining project evaluation using the Jacobi process," Resources Policy, Elsevier, vol. 65(C).
    4. Onno Lint & Enrico Pennings & Martin Natter, 1999. "Optionsmanagement in F&E: Eine Fallstudie," Schmalenbach Journal of Business Research, Springer, vol. 51(10), pages 990-1006, October.
    5. Pennings, Enrico & Lint, Onno, 1997. "The option value of advanced R & D," European Journal of Operational Research, Elsevier, vol. 103(1), pages 83-94, November.
    6. Henao, Alvin & Sauma, Enzo & Gonzalez, Angel, 2018. "Impact of introducing flexibility in the Colombian transmission expansion planning," Energy, Elsevier, vol. 157(C), pages 131-140.
    7. Biancardi, Marta & Di Bari, Antonio & Villani, Giovanni, 2021. "R&D investment decision on smart cities: Energy sustainability and opportunity," Chaos, Solitons & Fractals, Elsevier, vol. 153(P2).
    8. Chen, Shan & Insley, Margaret, 2012. "Regime switching in stochastic models of commodity prices: An application to an optimal tree harvesting problem," Journal of Economic Dynamics and Control, Elsevier, vol. 36(2), pages 201-219.
    9. Qin, Ruwen & Nembhard, David A., 2012. "Demand modeling of stochastic product diffusion over the life cycle," International Journal of Production Economics, Elsevier, vol. 137(2), pages 201-210.
    10. José Azevedo‐Pereira & Gualter Couto & Cláudia Nunes, 2010. "Optimal timing of relocation," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 6(2), pages 143-163, April.
    11. Cuypers, I.R.P., 2009. "Essays on equity joint ventures, uncertainty and experience," Other publications TiSEM 8dc79e86-c625-467f-a450-8, Tilburg University, School of Economics and Management.
    12. Zhang, Xinhua & Yang, Hongming & Yu, Qian & Qiu, Jing & Zhang, Yongxi, 2018. "Analysis of carbon-abatement investment for thermal power market in carbon-dispatching mode and policy recommendations," Energy, Elsevier, vol. 149(C), pages 954-966.
    13. Rena Sivitanidou, 1999. "Does the Theory of Irreversible Investments Help Explain Movements in Office-Commerical Construction?," Working Paper 8659, USC Lusk Center for Real Estate.
    14. Twine, Edgar E. & Kiiza, Barnabas & Bashaasha, Bernard, 2015. "The Flexible Accelerator Model of Investment: An Application to Ugandan Tea- Processing Firms," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 10(1), pages 1-15, March.
    15. Bruno Deffains & Marie Obidzinski, 2009. "Real Options Theory for Law Makers," Recherches économiques de Louvain, De Boeck Université, vol. 75(1), pages 93-117.
    16. Cristina Mihaela Onica & Nicoleta Ghilic & Maria-Gabriela Chirita, 2015. "News And Perspectives On Accounting And Econometric Modeling Cash Flow Indicators In The Companies Listed On The Capital Market," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 435-443.
    17. Lee, Seung-Hyun & Makhija, Mona & Paik, Yongsun, 2008. "The value of real options investments under abnormal uncertainty: The case of the Korean economic crisis," Journal of World Business, Elsevier, vol. 43(1), pages 16-34, January.
    18. Pfann, Gerard A., 2001. "Options to quit," Economics Letters, Elsevier, vol. 70(2), pages 259-265, February.
    19. Suresh M. Sundaresan, 2000. "Continuous‐Time Methods in Finance: A Review and an Assessment," Journal of Finance, American Finance Association, vol. 55(4), pages 1569-1622, August.
    20. Zbigniew Palmowski & Jos'e Luis P'erez & Kazutoshi Yamazaki, 2020. "Double continuation regions for American options under Poisson exercise opportunities," Papers 2004.03330, arXiv.org.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jeners:v:15:y:2022:i:16:p:6084-:d:894514. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.