Risk-based method for distribution system reliability investment decisions under performance-based regulation

In the re-regulated electricity market, there is a growing interest in performance-based regulation accompanied by quality regulation for electric distribution networks. This study develops a new risk-based method for reliability investment decisions when the distribution system operator (DSO) is exposed to financial risks defined by a quality regulation. As quality regulation design becomes more complex, more detailed risk management methods are needed in order to adequately capture the financial risk the DSO is exposed to. The proposed method applies the Monte-Carlo simulation technique in order to assess the risks of the considered reinvestment projects. By using the proposed method, the impacts that different risk strategies (risk-neutral/risk-averse) and risk models (non-time-varying/time-varying) have on which reinvestment project is selected is investigated in a case study. This is investigated for two different quality regulation designs. The results show that primarily not only the quality regulation design but also the risk model formulation and risk strategy have a major impact on which reinvestment project is selected.