Valuing Flexibility in Distribution System Planning including Distributed Generation

BUZARQUIS, E.; BLANCO, G.; OLSINA, F.; GARCÉS, F.

Rio de Janeiro

Simposio; XII Symposium of Specialists in Electric Operational & Expansion Planning (SEPOPE); 2012

CIGRE Brazil

With the deregulation of the electricity sector, Distributed Generation (DG) has received increasing attention in the power systems development. The planning of efficient and well-timed investments in the Distribution Systems that cope with large power market uncertainties is currently an important issue which has a significant broad appeal. Strategic flexibility for seizing opportunities and cutting losses contingent upon an adverse unfolding of the long-term uncertainties is a feature of enormous value when valuing irreversible investments. By and large, DG units appear as an effective alternative of adding flexibility to the distribution expansion planning process. This article proposes a novel optimization algorithm to solve the problem of the optimal expansion strategy which suitably assesses the option value of deferring traditional expansion investments (substation upgrades or distribution feeders) whereas gaining flexibility by investing in DG units. The optimization algorithm implemented is so-called Evolutionary Particle Swarm Optimization (EPSO), which is a tool that combines features of Evolutionary Strategies and Particle Swarm Optimization (PSO). Within the optimization process, the flexibility provided by DG investments is assessed through a Real Option Valuation approach based on the novel Least Square Monte Carlo method (LSM). In order to illustrate the applicability of the proposed valuation approach, traditional expansion strategies and flexible investment strategies (i.e. traditional distribution investments and DG) are investigated in a study case. The article exposes that an appropriate substation upgrading, feeder arrangements and DG installation may lead to efficient investments by allowing a gradual adaptation of the distribution grid to changing scenarios. In the light of the result of the proposal, it exposes that optimal investment strategies, including Distributed Generation (DG) as an investment alternative, are able to be obtained.