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Title: Distributed Generation Investment by a Microgrid UnderUncertainty

Abstract

This paper examines a California-based microgrid s decision to invest in a distributed generation (DG) unit that operates on natural gas. While the long-term natural gas generation cost is stochastic, we initially assume that the microgrid may purchase electricity at a fixed retail rate from its utility. Using the real options approach, we find natural gas generating cost thresholds that trigger DG investment. Furthermore, the consideration of operational flexibility by the microgrid accelerates DG investment, while the option to disconnect entirely from the utility is not attractive. By allowing the electricity price to be stochastic, we next determine an investment threshold boundary and find that high electricity price volatility relative to that of natural gas generating cost delays investment while simultaneously increasing the value of the investment. We conclude by using this result to find the implicit option value of the DG unit.

Authors:
;
Publication Date:
Research Org.:
Lawrence Berkeley National Lab. (LBNL), Berkeley, CA (United States)
Sponsoring Org.:
USDOE. Office of Electricity Delivery and EnergyReliability. Distributed Energy Program
OSTI Identifier:
888985
Report Number(s):
LBNL-60592
R&D Project: 6793TD; BnR: TD5003340; TRN: US200619%%306
DOE Contract Number:  
DE-AC02-05CH11231
Resource Type:
Conference
Resource Relation:
Conference: The 19th Mini-EURO Conference Operation ResearchModels and Methods in the Energy Sector (ORMMES 2006)., Coimbra,Portugal, September 6-8, 2006
Country of Publication:
United States
Language:
English
Subject:
03 NATURAL GAS; 29 ENERGY PLANNING, POLICY AND ECONOMY; 32 ENERGY CONSERVATION, CONSUMPTION, AND UTILIZATION; ELECTRICITY; FLEXIBILITY; NATURAL GAS; PRICES; VOLATILITY; distributed generation microgrid

Citation Formats

Siddiqui, Afzal, and Marnay, Chris. Distributed Generation Investment by a Microgrid UnderUncertainty. United States: N. p., 2006. Web.
Siddiqui, Afzal, & Marnay, Chris. Distributed Generation Investment by a Microgrid UnderUncertainty. United States.
Siddiqui, Afzal, and Marnay, Chris. 2006. "Distributed Generation Investment by a Microgrid UnderUncertainty". United States. https://www.osti.gov/servlets/purl/888985.
@article{osti_888985,
title = {Distributed Generation Investment by a Microgrid UnderUncertainty},
author = {Siddiqui, Afzal and Marnay, Chris},
abstractNote = {This paper examines a California-based microgrid s decision to invest in a distributed generation (DG) unit that operates on natural gas. While the long-term natural gas generation cost is stochastic, we initially assume that the microgrid may purchase electricity at a fixed retail rate from its utility. Using the real options approach, we find natural gas generating cost thresholds that trigger DG investment. Furthermore, the consideration of operational flexibility by the microgrid accelerates DG investment, while the option to disconnect entirely from the utility is not attractive. By allowing the electricity price to be stochastic, we next determine an investment threshold boundary and find that high electricity price volatility relative to that of natural gas generating cost delays investment while simultaneously increasing the value of the investment. We conclude by using this result to find the implicit option value of the DG unit.},
doi = {},
url = {https://www.osti.gov/biblio/888985}, journal = {},
number = ,
volume = ,
place = {United States},
year = {Fri Jun 16 00:00:00 EDT 2006},
month = {Fri Jun 16 00:00:00 EDT 2006}
}

Conference:
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