Methodology For Evaluating Grid Development Strategies Considering Real Options and Risks

Traditional power grid planning is based on passive measures such as grid reinforcement and using present value calculations to compare grid development plans. However, this approach does not accurately represent the real options value of using active measures such as demand-side flexibility for postponing grid reinforcement through a ”wait-and-see” approach to manage the long-term uncertainty in load growth. However, the value of using active measures may come at the price of reducing the security margins in grid operation. This leads to an increased risk of operational challenges during operation, and this risk must be weighed against the value of using active measures. This paper presents a methodology for quantifying both the value and risk (or price) of real options related to grid development strategies using active measures, providing grid planners with more comprehensive information about the advantages and disadvantages. The methodology is demonstrated using an illustrative and simple case for a medium voltage reference distribution system, where flexibility from local energy communities is considered as an example of an active measure. The case study illustrates how some risk-taking is required to realize the value from using active measures.