Risk assessment in distribution network investment evaluation: Experience with VAR methodology

This paper addresses the subject matter of the evaluation of distribution network investment plans. Typically the distribution network operators (DNO) evaluate investment plans based on the discounted cash flow (DCF) methodology that establishes the net present value (NPV) and internal rate of return (IRR). In the NPV evaluation, the costs and benefits of a plan have load growth rate and investment costs as primitives. Load growth determines both the evolution of losses and the evolution of network capacity adequacy. Today it is harder to obtain a good forecast on load growth, with the ins an outs of distributed generation, as well a correct estimation of the investment costs, with the increased influence of local authorities to modify planned solutions. In this context, DNOs are increasingly interested in evaluating the risk associated with the variations of both NPV primitives. This paper proposes an evaluation methodology based on the value at risk (VAR) to obtain the worth expected value within a predefined time period and confidence level. The methodology is presented together with an application example that takes into account the DNO´s historic error deviations both in load growth and costs.