Optimal investment of conventional and renewable generation assets

Driven by the national policy to expand renewable generation, as well as the advances in renewable technologies that reduce the cost of small-scale renewable generation units, distributed generation at end users will comprise a significant fraction of electricity generation in the future. We study the problem faced by a social planner who seeks to minimize the long-term discounted costs (associated with both the procurement and the usage of conventional and distributed generation assets), subject to meeting an inelastic demand for electricity. Under mild conditions on the problem parameters, we fully characterize the optimal investment policy for the social planner. We also analyze the impact of problem parameters (e.g., asset lifespans) on the optimal investment policy through numerical examples.