Studies On Generation Investment Decision-making And Regulation In Electricity Market Environment

Power industry restructuring divided the traditional vertically integrated power industry into four sectors, namely generation, transmission, distribution and retail. In different sectors. different regulation methods could be employed. Distribution/transmission networks, still being natural monopoly, will continue being regulated. However, with the development of regulation economics and the wide recognition of inherent drawbacks of the traditional rate-of-return (ROR) regulation or cost-of-service (COS) regulation. new regulation regimes called performance-based regulation (PBR) has been applied widely into the power industry. The employment of PBR in distribution systems could provide some incentives for improving operating efficiency and reducing electricity prices. However, if the PBR mechanism is not properly designed, the enforcement of the PBR may have a negative effect on the supply reliability. Thus, when designing PBR mechanisms for distribution systems, the effects on supply reliability should be considered. The method of setting proper reward/penalty structures for PBR to reduce the service cost of distribution companies efficiently as well as to guarantee the supply reliability is still a valuable problem for research. On the other hand, the price cap is widely enforced in many operating electricity markets worldwide, especially in those markets employing the well-known single-buyer model with retail electricity prices fixed, in order to limit the exercising of market power by generation companies and also to reduce the financial risks of transmission companies. On the other hand, the specification of the price cap is opposed by many scholars worldwide as it is thought that the price cap could provide negative effect on inducing generation investment. and result in generation capacity insufficiency and unreliable power supply. Up to now. there are only a few publications regarding the setting up of the rational price cap for the generation side. Detailed quantitative analysis on the effect of the price cap on the generation investment is still very demanding. In this thesis, the above mentioned problems are investigated and some significant results obtained.The pattern of PBR with reward/penalty structures is first analyzed and a mathematical model for optimally setting the parameters of the PBR with a reward/penalty structure presented, with the minimization of the costs associated with the enforcement of the PBR as the objective and the required reliability level for the distribution system operation as the constraint. The well-known genetic algorithm is employed for solving the optimization problem.Secondly, the problem of determining an adequate price-cap for generation companies in the single-buyer market with retail electricity prices fixed is investigated. From the standpoint of the regulatory organization, a heuristic method is proposed following the ex post approach.Thirdly, upon the assumption that the load growth is the major source of uncertainty, the effects of the price-caps on the base-load unit investment and peak-load unit investment are examined, for the energy-only electricity market and the one which includes the energy market and installed capacity market. A sample example is served for demonstrating the essential features of the presented approach.Fourthly, upon the assumption that load growth is the major source of uncertainty, a new methodological framework for generation investment decision-making is presented based on the option-game approach, with competition for generation investment from other investors taken into account. A mathematical model is built and a solving approach developed for this problem. A sample example is served for demonstrating the essential features of the presented model and approach, and the effects of price-cap on generation investment then examined in a quantitative manner.Lastly, conclusions are made based on the research outcomes, and directions for future research indicated.