Decision Area of Distributed Generation Investment as Deferral Option in Industrial Distribution System Using Real Option Valuation

Distribution system planning (DSP) aims to ensure, that the electricity distribution can satisfy the demand in an optimum way. It has to provide the necessary economical, reliable, and secure electricity to consumer. Network solutions of DSP are the solutions that need adding and/or replacing some network asset. Traditional response is a large investment that creates large capacity. Therefore there may be unused capacity for period years. Thus, there is excess system capacity after the investment is made. In other hand, the alternative responses frequently install distributed generation in very small size. Original plan can be deferred by installing distributed generation. Investment using distributed generation is an option to defer the larger investment in distribution planning. Utility can use this option to face the uncertainty in demand projection. This paper proposes model for determining decision area of distributed generation investment as deferral option in industrial distribution system planning. It uses real option valuation to define the boundary by using the critical value. This study depicts the decision area by ‘discount rate’-‘electricity price on transmission’ and ‘discount rate’-‘delaying time’ boundary. Learn more