The investment criteria of the Swedish electricity industry

Abstract

This article examines the investment criteria used by the Swedish power industry. The so-called combined criterion has several practical advantages. One is that it facilitates consideration of the value of an increase in the reliability of the electric power system with respect to energy and to capacity simultaneously. Another is that it can be used to evaluate expansion and replacement investments as well as investments in pure reserves. The dimensioning of energy reserves is also discussed. The Swedish power industry use an evaluation of the costs of an energy shortage that is the same regardless of the size of the shortage. The effects of assuming that the costs of a shortage increase with the size of the shortage are studied and estimates of the optimal size of the energy reserve have benn made under alternative assumptions. These estimates indicate that the Swedish energy reserve may be excessive at present.