Validation of a dynamic control model to simulate investment cycles in electricity generating capacity

The ability of the liberalised energy markets to trigger investment in the generation capacity required to maintain an acceptable level of security of supply risk has been - and will continue to be - a topic of much debate. Modelling the dynamics of investment in generation capacity can inform this debate. More precisely, if investment is viewed as a negative feedback control mechanism with energy prices acting as the feedback signal then the system can be formulated in terms of differential equations and addressed as a problem in optimal control. The approach presented uses techniques from control theory to model investment market dynamics and a classical NPV approach is used for the investor decision process. The results of the model verification stage are presented whereby the model´s ability to simulate the market trends witnessed in Britain since early 2001 is tested with encouraging findings reported.