Incorporating demand flexibility in strategic generation investment planning

Abstract

The envisaged decarbonization of electricity systems has attracted significant inte rest around the role and value of demand flexibility . However, the impact of this flexibility on generation investments in the deregulated electricity industry setting remains a largely unexplored area, since previous relevant work neglects the time - coupli ng nature of demand shifting potentials. This paper addresses this challenge by proposing a strategic generation investment planning model expressing the decision making process of a self - interested generation company and accounting for the time - coupling o perational characteristics of demand flexibility. This model is formulated as a multi - period bi - level optimization problem, which is solved after converting it to a Mathematical Program with Equilibrium Constraints (MPEC). Case studies with the proposed mo del demonstrate that demand flexibility reduces the total generation capacity investment, enhances investments in baseload generation and yield s significant economic benefits in terms of total system costs and demand payments.