Investment decisions under uncertainty: application to the power sector.

Summary How can uncertainties be taken into account in an investment choice model for power plants? This is the question that we have partly studied in order to determine the impact of uncertainties on investment strategies in the electricity sector. The theoretical framework that we have chosen corresponds to a representation of the problems of investment choice for an electricity producer in a monopoly situation, confronted with two types of uncertainty concerning the level of demand on the one hand and the level of fuels on the other. In the first part, some basic concepts specific to the electricity sector, as well as various choice criteria in an uncertain environment are listed. The second part proposes a two period model. In this model, investment decisions are made during the first period in the presence of uncertainty on fuel prices or demand, which is specified using a load monotone. At the beginning of the second period, the uncertainties are removed, and the minimization of the electricity production costs amounts to determining the contribution of each available technology. The third and more theoretical part extends the field of application of the theory of irreversible investments under uncertainty. The concern of this theoretical extension is to adopt a more realistic representation of the investment choice problems for an electricity producer.