Incorporating Demand Flexibility in Strategic Generation Investment Planning

The envisaged decarbonization of electricity systems has attracted significant interest around the role and value of demand flexibility. However, the impact of this flexibility on generation investments in the deregulated electricity industry setting remains a largely unexplored area, since previous relevant work neglects the time-coupling nature of demand shifting potentials. This paper addresses this challenge by proposing a strategic generation investment planning model expressing the decision making process of a self-interested generation company and accounting for the time-coupling operational characteristics of demand flexibility. This model is formulated as a multi-period bi-level optimization problem, which is solved after converting it to a Mathematical Program with Equilibrium Constraints (MPEC). Case studies with the proposed model demonstrate that demand flexibility reduces the total generation capacity investment, enhances investments in baseload generation and yields significant economic benefits in terms of total system costs and demand payments.