Abstract
The future demand for electricity is uncertain and difficult to forecast, but it is necessary to do so in order to construct power plants. In that sense, a large-scale power plant is disadvantageous because it takes a long time to construct. On the other hand, although it takes less time to construct, a small-scale power plant is more expensive. Therefore large- and small-scale power plants could complement the disadvantages of each other. This paper develops a stochastic dynamic programming model to investigate the possibility. The model determines the capacities of large- and small-scale power plants in the face of uncertain demand to minimize the expected value of the total cost. Computed results have shown that small-scale plants can play a significant role in this case even if they are more expensive than large-scale plants.
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