Dynamic Long-Term Modelling of Generation Capacity Investment and Capacity Margins
Abstract
Many governments who preside over liberalised energy markets are developing policies aimed at promoting investment in renewable generation whilst maintaining the level of security of supply customers have come to expect. Of particular interest is the mix and amount of generation investment over time in response to policies promoting high penetrations of variable output renewable power such as wind. Modelling the dynamics of merchant generation investment in market environments can inform the debate. Such models need improved methods to calculate expected output, costs and revenue of thermal generation subject to varying load and random independent thermal outages in a power system with high penetrations of wind. This paper presents a dynamic simulation model of the aggregated Great Britain (GB) generation investment market. The short-term energy market is simulated using probabilistic production costing based on the Mix of Normals distribution technique with a residual load calculation (load net of wind output). Price mark-ups due to market power are accounted for. These models are embedded in a dynamic model in which generation companies use a Value at Risk (VaR) criterion for investment decisions. An `energy-only' market setting is used to estimate the economic profitability of investments and forecast the evolution of security of supply. Simulated results for the GB market case study show a pattern of increased relative security of supply risk during the 2020s. In…
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