Valuing Flexibility of DG Investments in Transmission Expansion Planning

Planning for efficient and well-timed investments in electric transmission systems, whereas properly managing the huge uncertainties involved, is currently a subject of considerable research interest. Retaining strategic flexibility in order to make fast and economic contingent decisions upon unexpected scenarios is a sound strategy for dealing with uncertainty within the transmission expansion problem. In this sense, distributed generation (DG) seems an effective way for adding flexibility to transmission expansion plans. In this article, a new expansion planning approach that properly assesses the option value of deferring expansion investments while flexibility is gained by investing in DG is proposed. In a numerical example, the economic value of the flexibility provided by different real options is compared against economies of scale of a larger, though more irreversible, transmission project obtained by classical stochastic optimization techniques.