Data Management

Stochastic Equilibrium Models For Generation Capacity Expansion

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Executive Summary

Capacity expansion models in the power sector were among the first applications of operations research to the industry. The models lost some of their appeal at the inception of restructuring even though they still offer a lot of possibilities and are in many respect irreplaceable provided they are adapted to the new environment. The authors introduce stochastic equilibrium versions of these models that they believe provide a relevant context for looking at the current very risky market where the power industry invests and operates. They then take up different questions raised by the new environment. Some are due to developments of the industry like demand side management: an optimization framework has difficulties accommodating them but the more general equilibrium paradigm offers additional possibilities.

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