The impact of convexity on expansion planning in low‑carbon electricity markets

Sonja Wogrin*, Diego Alejandro Tejada Arango, Stefanos Delikaraoglou, A. Lamadrid, Audun Botterud

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

Expansion planning models are tools frequently employed to analyze the transition to a carbon-neutral power system. Such models provide estimates for an optimal technology mix and optimal operating decisions, but they are also often used to obtain prices and subsequently calculate profits. This paper analyzes the impact of modeling assumptions on convexity for power system outcomes and, in particular, on investment cost recovery. Through a case study, we find that although there is a long-term equilibrium for producers under convex models, introducing realistic constraints, such as non-convexities/lumpiness of investments, inelastic demand or unit commitment constraints, leads to profitability challenges. We furthermore demonstrate that considering only short-term marginal costs in market-clearing may potentially create a significant missing-money problem caused by a missing-market problem and dual degeneracy in a 100 percent renewable system.

Original languageEnglish
Pages (from-to)574-593
Number of pages20
JournalTOP: An Official Journal of the Spanish Society of Statistics and Operations Research
Volume2022
Issue number30
Early online date2022
DOIs
Publication statusPublished - 2022

Keywords

  • Convexity
  • Cost recovery
  • GEP
  • Modeling
  • Optimization
  • Profitability

ASJC Scopus subject areas

  • Information Systems and Management
  • Discrete Mathematics and Combinatorics
  • Modelling and Simulation
  • Management Science and Operations Research

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