Optimal capacities of large- and small-scale power plants in the face of uncertain demand

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.