eprintid: 5332
rev_number: 47
eprint_status: archive
userid: 587
dir: disk0/00/00/53/32
datestamp: 2008-04-24 16:37:00
lastmod: 2015-07-23 09:33:46
status_changed: 2008-04-24 16:37:00
type: proceedings_section
metadata_visibility: show
creators_name: Siddiqui, A.S.
creators_name: Marnay, C.
creators_id: ASIDD11
creators_id: 
title: Operation of distributed generation under stochastic prices
ispublished: pub
subjects: 11300
divisions: F61
keywords: Distributed generation, stochastic dynamic programming, real options
note: Please also see http://eprints.ucl.ac.uk/5450 and http://eprints.ucl.ac.uk/5452
abstract: The ongoing deregulation of electricity industries worldwide is providing incentives for microgrids,
entities that use small-scale distributed generation (DG) and combined heat and power (CHP) ap-
plications to meet local energy loads, to evolve independently of the traditional centralised grid in
order to provide greater flexibility and energy efficiency to end-use consumers. We examine the
impact of start-up costs on the option values and operating schedules of on-site DG installed by
a microgrid in the presence of stochastic electricity and fuel prices. We proceed by formulating a
stochastic dynamic programme (SDP) for the microgrid that minimises its expected discounted cost
over a time horizon and solving it using least-squares Monte Carlo (LSMC) simulation. The expected
cost saving that the microgrid realises by having gas-fired DG installed relative to meeting its entire
electric load via off-site purchases is the implied option value of DG. Numerical examples indicate
that although start-up costs do not significantly lower DG value, they, nevertheless, have a profound
impact on the optimal DG operating schedule as the microgrid must incorporate not only current,
but also future, expected start-up costs into its current decision-making process as an opportunity
cost. As a consequence, the microgrid becomes more hesitant to turn DG units on (off), preferring
to wait until the electricity price (natural gas generating cost) exceeds the natural gas generating
cost (electricity price) by a significant margin before taking action. We demonstrate that ignoring
this tradeoff and proceeding myopically as in the case without start-up costs results in drastically
higher expected costs and fewer opportunities to use DG.
date: 2006-04
date_type: published
publisher: Lawrence Berkeley National Laboratory
official_url: http://eetd.lbl.gov/EA/EMP/reports/59446.pdf
vfaculties: VMPS
oa_status: green
language: eng
primo: open
primo_central: open_green
lyricists_name: Siddiqui, A
lyricists_id: ASIDD11
full_text_status: public
number: LBNL-5
place_of_pub: Berkeley, USA
event_title: 29th International Conference of the International Association for Energy Economics
event_location: Potsdam/ Berlin, Germany
event_dates: June 7 - 10, 2006.
event_type: conference
refereed: TRUE
book_title: Proceedings of the 29th International Conference of the International Association for Energy Economics
citation:        Siddiqui, A.S.;    Marnay, C.;      (2006)    Operation of distributed generation under stochastic prices.                     In:  Proceedings of the 29th International Conference of the International Association for Energy Economics.    Lawrence Berkeley National Laboratory: Berkeley, USA.       Green open access   
 
document_url: https://discovery.ucl.ac.uk/id/eprint/5332/1/5332.pdf