Publication
The restructuring of the electricity supply industry (ESI) has introduced new actors and market mechanisms. Electricity prices are more market oriented and fluctuate greatly. These changes bring about more uncertainties and risks to the market participants. When there are high risks in the future, the actors tend towards short-term decisions in which the risks are relatively easier to be coped with than in the long-term decisions. Much research has been carried out on short and medium-term risk management. The contracts of financial derivatives are managed for hedging risks. However, the development of long-term planning and risk management methods in the liberalised ESI has so far not attracted much attention. Long-term anticipations and planning have always been a significant issue given the specific characteristics of the ESI and the importance of security of supply. In liberalised electricity markets, the traditional centralised least-cost generation capacity planning is less relevant. The planning activities have become decentralised, i.e., individual actor makes planning for achieving its goals under certain risks. The ESI is in a transition from monopoly to competitive market and the liberalised electricity market has a short history. It is dominated by structural changes and actors' game behaviour, which are usually not of a random nature. Therefore, it is not always able to model the long-term uncertainties with the widely used probability methods in risk management. Under the large uncertainties and with the difficulty of uncertainty modelling, how would the actors make long-term investment decisions and manage risks? This thesis is an attempt to answer this question. The problem under study in this research is generalised as "investment planning with flexibility in the competitive electricity market". We argue that to select a flexible alternative strategy is one of the ways for managing long-term risks. The flexibility means that the actor is capable of adapting the investment decisions under different market situations in the future. For example, a project can be deferred to wait for more information, be expanded if the market situation becomes favourable or be abandoned if the market situation becomes unfavourable. For an electricity generator, the problem is capacity planning, for example, to construct a new power plant. For a consumer, it is energy portfolio planning. The alternatives may include different purchasing contracts and investment for self-generation. The purpose of this research is to develop a new approach for dealing with these kinds of problems. The requirements of the new approach are proposed in this thesis as: The flexibility of the investment projects or strategies should be accounted in the decision-making; The uncertainty modelling should reflect the long-term trends and characteristics of the liberalised electricity markets; Electricity price forecasting should reflect the interactions among the market player