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Procedia Environmental Sciences 00 (2011) 000–000 Energy Procedia 14 (2012) 681 – 688

Procedia Environmental Sciences

A Decision-making Model on Stage Financing for Smart Transmission Grid Investment Based on Technology Readiness
Liu Yuexina*, Wang Ganga, Xiong Haoqinga, Meng Yuanjinga , Tang Yongb, Sun Huadongb, Yi Junb and Xiong Chuanpinga
b a Henan Electric Power Corporation, Songshan South Road, Zhengzhou City, Henan Province, No.87, 450052, China China Electric Power Research Institute, Qinghe Xiaoying East Road, Haidian District, Beijing City, No.15, 100192, China

Abstract Under the construction of smart grid, transmission grid investment is faced with many potential risks, and high flexibility of decision-making is asked. Based on technology readiness theory, stage financing issues for transmission grid investment are studied. Then transmission grid investment is divided into several stages, and in order to form an optimal investment scheme and find reasonable fund for each stage, a decision-making model for transmission grid investment based on technology readiness is established. The model is validated through three-stage transmission grid investment project in IEEE-24 bus system, to consider the optimal investment decision between transmission lines and TCSC devices.
Keywords: technology readiness level; stage financing; smart transmission grid.

__________________________________________________________________________________ 1. Introduction With the development of smart grid, the strategic target of building a strong smart grid has been proposed in our country. And the investment and construction of smart transmission grid is the key link [1]. The investment on transmission grid projects, whose proceeds are uncertain, is usually in a large scale and has a long period, and a lot of factors should be considered [2-5]. At the present time, our country takes Flexible AC Transmission System (FACTS), as the key module of smart transmission grid construction. It is a high-risk, large-scale and combinatorial investment issue to

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1876-6102 © 2011 Published by Elsevier Ltd. Selection and/or peer-review under responsibility of the organizing committee of 2nd International Conference on Advances in Energy Engineering (ICAEE). doi:10.1016/j.egypro.2011.12.887

System/subsystem model or prototype demonstration on the ground or in space. a decision-making model on stage financing is constructed based on technology readiness to determine the optimal investment scheme. Firstly. which provides a unified common language for the management and research institutions [15]. Fuzzy real option method was used in [12] to analyze the transmission investment decision under uncertain environment.\ / Energy Procedia 14 (2012) 681 – 688 introduce FACTS into the transmission grid investment. Considering the autonomy of power market entities and the uncertainty of power market sufficiently. 2) TRL2. Actual System completed and “flight qualified” through test. which can be divided into several stages. a delay option game model on transmission grid investment decision-making was proposed in [9]. TRL has now developed to 9 levels: 1) TRL1.2. Figure 1 illustrates the procedure to analyze the stage financing decision-making. Technology Readiness Assessment (TRA). stage financing will be more flexible. 2. the efficiency of the model is validated through an example in an IEEE 24-bus system. System prototype demonstrated in a space environment. That is because in stage financing. the investment should be divided into some efficient stages according to technology readiness levels. . lots of research on transmission grid investment decision-making has been done. paper [8] proposed a new approach for investors to obtain the optimal investment decisions. TR indicates the maturity of technology development in some specific related systems and projects. we just apply the theory to analyze the decision-making issue of smart transmission grid. Analysis on technology readiness of smart transmission grid 2. providing a foundation. the research and investment on transmission grid can also be divided into several levels.1. 3) TRL3. Technology readiness Technology readiness (TR) is a general indicator to assess the readiness of technology development by many government agencies. 2. Technology readiness level (TRL) is a standard to measure and evaluate the technology readiness degree. Actual system “flight proven” through successful mission operations. 8) TRL8. a multi-agent based decision-making model on transmission grid investment was proposed in [11]. investors can modify upper financing decisions according to the latest information. 4) TRL4. Component and/or breadboard validated in laboratory environment. Based on the real option theory and non-cooperative game theory. Decision-making analysis on stage financing for smart transmission grid based on TR Introducing TR theory. Basic principles observed and reported. Technology concept and/or application formulated. 9) TRL9. Analytical and experimental critical function. Compared to one-off financing. especially NASA and DOD. secondly. Component and/or breadboard validated in relevant environment. In this paper. Consequently it has the great significance to propose effective strategies to reduce the risks on transmission grid investment. proposed by Secretary of Defense. An evaluation model has been constructed to compute the benefits for different market entities after analyzing the decision-making process of transmission investment in [10]. has been widely used in risk management of military technology recently [13-14]. Every technology consequentially has a process of development and validation. 6) TRL6. 7) TRL7. Till now. 5) TRL5. After analyzing the transmission investment issue in which FACTS devices were included. It also provides a new way to the investment decision-making in our country. finally.682 Liu Yuexin et al.

i∈I . X in =0 means abandoning the i -th program. Modeling In this section. TRL is a measurement of the finishing degree at each stage. and M n is the investment funds.1. M n+1 )∈X ( Sn .6.8. and “ø” indicates giving up investment. the initial state set can be denoted as H ={1. The total investment cost is fixed. whose objective function is maximal probability that the project achieves TRL8.8” indicates the TRL that the program has reached.l∈L ∑ Cnil X nil ≤ M n . The increasing of the investment on one project will raise the probability of TRL transitting. the decision-making model based on TR. Assume that each alternative program starts at a certain TRL. 4) Compare the schemes and their combinations.5.1} . I is the amount of alternative programs.t. can be constructed as ( X n . and then upgrades according to a certain probability. where “1. while at each stage the investment is flexible. M n+1 ) | Sn .4. 3) Basing on the assessment model. The state set of investment decision and the funds at the n -th stage can be written by ( Sn . X in =1 means executing the i -th program.2. M n ) = ( X n . The decision set at the n -th stage can be given by X ( Sn .2. X in =0) is decision-making variable. L indicates the number of TRLs. In the modeling. X n }) (3) (4) s.ø}.…. calculate the indicator values of all the investment schemes. So far.1} I I ×L × R+ (2) Where X n ( X n ⊆ {0. At any stage. choose the optimal one.\ / Energy Procedia 14 (2012) 681 – 688 683 Fig. a decision-making model based on TR will be constructed. R+ is the matrix of investment funds for each program. Decision-making model on smart transmission grid investment based on TR 3.7. 3. divide the investment into several stages. M n ) ∈ ( ∏ H ) × R+ i∈I (1) Where Sn ( S n ⊆ H ) is the state of the investment program.Liu Yuexin et al. M n +1 ) ∈ {0.3. 1) According to TRL. 2) Construct the assessment model on optimal decisions for different investment schemes. 1 Analysis process of decision-making on stage financing for smart transmission grid investment based on TR. M n ) max ( E {Fn+1 (Sn+1 . and the maximal probability that the project achieves TRL8 will be the objective function.

M n−1 ) Sn ∈H max ∑ f n ( Sn . 4. if Sni = ∅. and denote it as f N (S N . M n )∈X ( Sn−1 . where the length and the transmission capacity can be referenced in [16]. M N ) : f N ( SN . And Table I (a). (b). (c) respectively list the state transition probability of each investment program calculated by using Delphi algorithm. X nil =0 means giving up to invest the i -th scheme when the technology readiness level is l . Finally. In this case. There are three optional programs: transmission lines investment. an IEEE 24-bus system will be used to analyze our decision-making model. The initial structure is shown in figure 2. and the combination of the above two. 3.2 Model solution Backward induction is applied to solve the decision-making model. ∀i ∈ I . (8) Secondly. and at the end of the third stage there is at least one investment program that enables the transmission project to reach TRL8.\ / Energy Procedia 14 (2012) 681 – 688 l∈L ∑ X nil ≤ 1. Case study In this chapter. l ∈ L M n +1 = M n − ∑ Cnil X nil i∈I . N +1 i∈I . TCSC devices investment. calculate the maximal probability that the alternative program achieves TRL8 at the last investment stage (the N -th stage). ∀i ∈ I (5) (6) (7) X nil = 0. and the line between node 15 and node 21(L2). X n −1} . choose the best investment program or the combination of these programs. . Based on TRL.684 Liu Yuexin et al. while X nil =1 means executing it. calculate the maximal transition probabilities according to equation (9). an investment project is considered to increase capacity of the line between node 11 and node 13 (L1). according to the decision-making index value of each program. M N +1 )∈ X ( S N . calculate the maximal transition probability at the ( N − 1 )-th investment stage: f n −1 ( Sn −1 . and the solution procedure is: Firstly. M N ) max 1 − ∏ = 8 | S Ni . X Nil }) (1 − P {Ci . M N ) = ( X N . the investment can be divided into 3 stages ( N =3). M n −1 ) = ( X n−1 . (9) Thirdly. Figure 3 shows the TRL transition at the whole investment stage. M n ) P {Sn | Sn −1 .l∈L Where Cnil and X nil respectively means the investment cost and the decision–making variable of the i -th program at the n -th stage when the technology readiness level is l .

2 IEEE 24-bus system.2 6 6 0. Initial TRL End TRL Probability 4 4 0.3 4 5 0.1 6 7 0.1 7 8 0.1 4 5 0.5 4 7 0.07 5 5 0.35 7 7 0.88 .15 7 8 0.45 4 7 0.9 8 8 1 Table I (b).2 5 8 0.4 4 7 0.1 6 6 0.3 5 8 0.1 6 7 0.4 7 7 0.2 4 5 0.5 6 8 0.1 4 6 0.12 7 8 0.2 4 8 0.3 7 7 0.1 5 6 0.45 5 7 0.1 4 6 0.5 5 7 0. 3 TRL transition at the whole investment stage.15 4 8 0.05 5 5 0.85 8 8 1 Table I (c).55 6 8 0. Fig.1 5 5 0.18 4 8 0.15 5 6 0.Liu Yuexin et al.State transition probabilities of Transmission line and TCSC Initial TRL End TRL Probability 4 4 0. Table I (a).\ / Energy Procedia 14 (2012) 681 – 688 685 Fig.1 6 7 0. State transition probabilities of TCSC Initial TRL End TRL Probability 4 4 0.15 6 6 0.4 5 7 0.State transition probabilities of Transmission line.25 5 8 0.2 5 6 0.1 4 6 0.6 6 8 0.

and the investment funds at each stage are shown in Figure 4. Besides. The decision-making model is then used to calculate the probability that each investment program achieves TRL8 (see Table 2). the investment funds decrease from one stage to another: it is the largest at the first stage. TCSC devices program should be chosen. while the investment cost of TCSC is 460 yuan RMB per kvar [18]. Three investment programs: transmission line.68 Table 2 shows that the probability that transmission line investment program achieves TRL8 is the smallest.5 1.76 Transmission line and TCSC 0. According to TRL. TRL5 and TRL6. and the investment cost of transmission line is 2. in a case of a fixed total cost. Conclusions Technology readiness theory is applied to the decision-making for smart transmission grid investment in this paper. We can learn from Figure 4 that. Table 2.686 Liu Yuexin et al.59 TCSC 0. the third stage is expected to achieve TRL8. Therefore. and the smallest at the third.0 2. TRL7 and TRL8.5 3.815. in order to maximize the probability that the transmission investment projects achieve TRL8. Investment funds (billion yuan) 3. in the smart transmission investment. which is the key link of technological input. the probability is between the above two. . Therefore. while the funds input at the second and the third stage gradually decrease with the development of research. if transmission line and TCSC devices are invested at the same time. in the smart transmission investment.600 yuan RMB per kilometer [17]. 4 Allocation of funds in various investment stages of smart transmission grid.5 2.The optimal probobility for each investment program to reach TRL8 Investment program Probability Transmission line 0. needs to invest more money.\ / Energy Procedia 14 (2012) 681 – 688 Assume that the smart transmission investment budget is 6 billion yuan RMB.0 0. TCSC devices and the combination of the above two. the first stage. 5. The reason for this phenomenon is that the cost of transmission line and TCSC at the same stage is different: to realize the same transmission capacity. the transmission investment can be divided into three stages.0 1. the second stage is expected to achieve TRL6. According to the TRL classification criterion.5 0 The first stage The second stage The third stage Fig. are compared through an IEEE-24 bus system. This is in connection with TRL that each stage should achieve: the first stage is expected to achieve TRL4. the cost of TCSC is lower than that of transmission line. based on which a decision-making model on stage financing is constructed. it needs to arrange the investment funds according to actual needs to improve the efficiency in use of funds. while the probability of TCSC devices investment program is the largest.

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power system planning and operation.D. Xiong Chuanping (1980. Multi-objective optimal placement of FACTS devices based on smart pareto solution [J].). 30(22): 57-63(in Chinese).\ / Energy Procedia 14 (2012) 681 – 688 [17] Dang Xiaofeng. Ph.). Yi Jun (1980.D. Tang Guangfu. State Grid Corporation of China. received both of the Bachelor and the master’s degree in Xi’an Jiaotong University.). power system planning. He Zhiyuan. His reach interests are smart grid. Meng Yuanjing (1955. professor-level senior engineer. Ph.). which is charged with planning and application of smart grid.D.688 Liu Yuexin et al.). His reach interests are smart grid. Tang Yong (1959. Master. In his career. 2010.).). Cost analyses of 750 kV transmission projects [J]. huge power system planning and its investment management has been his main work for a long time. Proceedings of the CSEE. 25(11): 37-39(in Chinese). Currently. Sun Huadong (1975. he is working in Smart Grid Center. senior engineer. . His reach interests are smart grid.. Electic Power of HeNan. D. postdoctoral at the station. he is Chief Engineer of Electic Power of HeNan.).. Xiong Haoqing (1979. Wang Gang (1966. Electic Power of HeNan. In his career. He is mainly engaged in the analysis software development of power system and the research of power system analysis engineering. 2009. His reach interests are smart transmission grid. State Grid Corporation of China. power system planning. [18] Qian Feng. Currently. Biographies Liu Yuexin (1966. Power System and Clean Energy. His reach interests are smart grid.. Ph. professor-level senior engineer.. professor-level senior engineer. power system planning and operation. Currently. he is the chief director of the smart grid center. Ph. power system planning and operation. huge power system planning and its investment management has been his main work for a long time.