Two modelling approaches to the capacity expansion problem under market conditions -: The Colombian experience

Many have argued that traditional planning approaches to the capacity expansion problem are inappropriate under the market conditions currently taking place world-wide in the electricity sector. Not long ago optimisation models were extensively used in Latin America to decide on capacity expansion planning considering reliability goals. Now, with some countries in the South American region moving away from central planning towards more liberalised set ups new tools seem to be required to support government polices on utilities management - in this context System Dynamics has been considered as an alternative option. In this paper two comparative modelling approaches to the problem are presented and compared. First, a System Dynamics model has been built as part of a larger project to study and assess the effect of market forces into the power generation sector, considering large-scale natural gas penetration programmes in the household sector and in the power generation industry. Second, both Linear Programming and Dynamic Programming models have also been used to evaluate the evolution of the electricity industry taking into account the old centralised decision scheme used before the liberalisation. The main objective of this exercise was to compare both methodologies and its capabilities to deal with the new market environment in the Colombian Electricity Sector. With the aid of the models, a number of economic signals to induce capacity investments to secure appropriate reserve margins for the Colombian electricity system have been examined. Some results and conclusions are also shown.