Electricity supply industry modelling for multiple objectives under demand growth uncertainty

Appropriate energy-environment-economic (E3) modelling provides key information for policy makers in the electricity supply industry (ESI) faced with navigating a sustainable development path. Key challenges include engaging with stakeholder values and preferences, and exploring trade-offs between competing objectives in the face of underlying uncertainty. As a case study we represent the South African ESI using a partial equilibrium E3 modelling approach, and extend the approach to include multiple objectives under selected future uncertainties. This extension is achieved by assigning cost penalties to non-cost attributes to force the model's least-cost objective function to better satisfy non-cost criteria. This paper incorporates aspects of flexibility to demand growth uncertainty into each future expansion alternative by introducing stochastic programming with recourse into the model. Technology lead times are taken into account by the inclusion of a decision node along the time horizon where aspects of real options theory are considered within the planning process. Hedging in the recourse programming is automatically translated front being purely financial, to include the other attributes that the cost penalties represent. From a retrospective analysis of the cost penalties, the correct market signals, can be derived to meet policy goal, with due regard to demand uncertainty. (C) 2007 Elsevier Ltd. All rights reserved.