Waiting Cost based Long-Run Network Investment Decision-making under Uncertainty

Xiaohe Yan, Chenghong Gu, Hongcai Zhang, Furong Li, Yonghua Song

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Traditional system investment decision is costly and hard to reverse. This is aggravated by uncertainties from flexible load and renewables (FLR), which impact the accuracy of network investment decisions and trigger a high asset risk. System operators have the incentive to postpone reinforcement, and ‘wait and see’ whether the request of investment can be reduced or delayed with new information. This paper proposes a novel method to evaluate network investment horizon deferral based on the trade-off between waiting profit and waiting cost under FLR uncertainties. Although deferring investment leads to waiting cost, it is worthy to wait if the cost is smaller than the waiting profits. To capture the impact of FLR uncertainties on system investment, nodal uncertainties are converted into branch flow uncertainties. The waiting cost is quantified by the options' cost based on real options method and waiting profit is from asset present value reduction due to the deferral. Thus, by paying waiting cost, current investment cost can be reserved until uncertainties are reduced to an acceptable level. The waiting time is evaluated by Sharp ratio and expected return, determined by the waiting cost and uncertainty level. The results show that paying waiting cost is an economical way to reduce the impact of uncertainty.

Original languageEnglish
Article number9298931
Pages (from-to)3340-3348
JournalIEEE Transactions on Power Systems
Issue number4
Early online date18 Dec 2020
Publication statusPublished - 1 Jul 2021


  • Long-run Incremental Cost
  • Network planning
  • Real Options
  • Uncertainty

ASJC Scopus subject areas

  • Energy Engineering and Power Technology
  • Electrical and Electronic Engineering


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