Analysis On Generation Enterprises Investment Decision-making Under Difference Of Market Mechanism

In the traditional integrated electricity operation system, the capacity investment which is generally included in national or local development plan is implemented administratively. Given there isn't capital constraint, traditional system can guarantee enough capacity investment. That is why many countries adopted traditional system to some extents. But the traditional system has low efficient supply. In order to solve the problem, many countries in the world started to deregulate the electricity industry. At the same time, some market mechanisms were proposed.Because the different market mechanism has decided the different price in the electric market and the capacity market,thus, affects the generation enterprise's profit. Therefore, we may say that the different market mechanism has also decided the different generation investment decision-making. In this paper, we divided the generation investment decision's content into two parts. We use the dynamic programming method and real option theory to develop two dynamic models that enable to make the optimal investment decisions. In the dynamic optimization model, we maximizes the investor's total expected profit over the planning period and, relative to the adopted market design, optimal expansion decisions as well as optimal declared capacities are found for each time step. Dynamic programming and real option theory are used for the resolution of the models. The effects of different factors on investment strategies, such as differences between construction delays and cost structures of the new technologies, are also analyzed.Lastly, we find that prices in the electricity market and the capacity market are manipulated by the investor when applying the capacity obligation mechanism, so they can get more profit. But in the reliability contract market, to obtain in the auction the additional income, the generator will choose submit its complete installed capacity. Moreover, we show that short lead time technologies are preferred when applying the capacity obligation design, while with the reliability contract mechanism, technologies with competitive costs are chosen. And we evaluate the different policy to affect the optimal expansion decisions. We also find that reliability contracts would be the more cost-efficient mechanism for assuring long-term system adequacy and encouraging earlier and adequate new investments in the system.