Methodology for Evaluating Grid Development Strategies Considering Real Options and Risks

Abstract

Traditional power grid planning is based on passive measures such as reinforcing the grid and using present value to compare different grid development plans. However, this approach does not accurately describe the real options value of using active measures, such as energy storage or demand-side load shifting, for postponing grid reinforcement through a “wait-and-see” approach to handle uncertainty in long-term load growth. However, the value of using active measures may come at the price of reducing the security margins in grid operation. This leads to an increased risk of problems during grid operation, and this risk must be weighed against the value of using active measures. This paper presents a methodology for quantifying both the value and risk (or price) of real options related to grid development strategies using active measures, providing grid planners with more comprehensive information about the advantages and disadvantages. The methodology is demonstrated using an illustrative and simple case for a medium voltage reference distribution system, where flexibility from local energy communities is considered as an example of an active measure. The case study illustrates how some risk-taking is required to realize the value from using active measures.

Methodology for Evaluating Grid Development Strategies Considering Real Options and Risks