THE CHOICE OF SCALE, TECHNOLOGY AND TIMING FOR ELECTRIC POWER PROJECTS

An electric utility operating to satisfy the instantaneous demand for electricity by its customers has investment and daily operation decisions are dominated by two cost items, capacity cost and fuel cost. This is not surprising for an industry whose business is employing capital to convert raw fuel into electricity for sale. For a long time, production cost minimization has occupied the central stage of utility operations. Even though this simplistic picture has been slowly eroded by the introduction of competition into the industry, the fundamental characteristics of the power generation business remain unchanged. The two techniques widely used in the daily power generation operation and investment decisions namely, economic dispatch and optimal stacking, provide a good demonstration of these characteristics. This paper seeks to illustrate how these techniques and the basic project appraisal paradigms can be merged and utilized for the selection of optimal scale and technology in the appraisal of power projects.