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Defining Distributed Resource Planning

The concept and objectives of distributed utility planning, sometimes called distributed resource (DR) planning, are unclear, This paper provides a cogent definition of DR planning and explains some of the emerging fallacies over its purpose. The objective of DR planning should be to meet customers' capacity needs at the lowest expected future cost by determining an optimal investment strategy for a given area. Many advocates of DR planning have erroneously defined the objective as deferral of "traditional" transmission and distribution facilities, and have developed methodologies to determine maximum deferral times. Defining the DR planning objective in this manner will always lead to higher than necessary costs, because cost-minimization is not addressed in an appropriate manner. In general, deferral methodologies have misspecified the objective function, used quantitative tools inappropriately, and, perhaps their most critical shortcoming, failed to incorporate the effects of uncertainty on the optimal investment strategy. The solution is to treat deferral as a consequence of developing a least-expected-cost distribution plan, rather than treating deferral as an objective in itself.

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Energy Specializations: Electricity – Distributed Generation; Electricity – Policy and Regulation

JEL Codes: G31: Capital Budgeting; Fixed Investment and Inventory Studies; Capacity, Q41: Energy: Demand and Supply; Prices, Q42: Alternative Energy Sources, D24: Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity, D81: Criteria for Decision-Making under Risk and Uncertainty, C53: Forecasting Models; Simulation Methods, C51: Model Construction and Estimation

Keywords: Electricity, distributed resource planning, investment, uncertainty

DOI: 10.5547/ISSN0195-6574-EJ-Vol18-NoSI-3

Published in Volume 18, Special Issue of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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