Capacity expansion with alternative technology choices

Abstract

This paper considers the problem of determining the amount of capacity of a technology to be acquired to meet demand increments over time, when there are alternative technology choices. For example, different technologies may have varying levels of automation, with different fixed and variable costs of acquisition and usage. First, a mathematical programming formulation of the problem is presented and certain properties of the model are exploited to develop an efficient forward solution procedure. This procedure, which exploits duality, is then used to derive a number of planning horizon results. These results help in determining initial capacity and technology acquisition decisions, that are infinite horizon optimal, with less forecast information. Finally, the results of a computational study are presented. This study enables us to understand the impact of demand patterns, demand variance and, fixed and variable costs on: (i) type of technology and the amount of capacity of that technology acquired, and (ii) forecast horizon values.