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 non-linearity, 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 RES incentives and CO₂ mitigation policies is considered in the framework of the generation planning problem to be solved by a GENCO. The proposed model allows consideration of most of present day incentives designed to support energy generation from renewable sources and to discourage the use of fossil fuels. Among the RES incentives, feed-in tariffs and quota obligation systems are considered; emission trade and carbon tax can be simulated to account for CO₂ emission mitigation measures. In particular, renewable energy quota and CO₂ emission limits result in a set of new constraints to be included in the model. Expenditures for CO₂ emission right purchase, cash flows deriving from green certificate trading and feed-in tariffs modify the objective function (to be maximized) consisting in the overall GENCO profits.