Generation Expansion Planning in the Age of Green Economy

Generation expansion planning (GEP) is the problem of finding the optimal strategy to plan the construction of new generation plants while satisfying technical and economical constraints. It is a challenging problem due to its nonlinearity, large-scale, and to the discrete nature of the variables describing unit size and allocation. Originally, GEP was faced by vertically integrated utilities with the aim of minimizing production and capital costs. After deregulation, generation companies were forced to consider GEP from the viewpoint of market shares and financial risk. In recent years, increasing concern for environmental protection has driven lots of countries all over the world to promote energy generation from renewable sources. Different incentive systems have been introduced to support the growth of the investments in generation plants exploiting renewable energy. In the present paper, the impact of some of the most popular incentive systems (namely feed-in tariffs, quota obligation, emission trade, and carbon tax) on generation planning is considered, thus obtaining a comprehensive GEP model with a suitably modified objective function and additional constraints. The resulting problem is solved by resorting to the generalized Benders decomposition (GBD) approach and implemented in the Matlab programming language. Tests are presented with reference to the Italian system.