Economic Analysis of Investment in Power Systems

Abstract

The main purpose of the paper is to design an approach which will indicate how information available from current practices in investment planning in the power sector can be exploited to conduct rigorous cost-benefit analysis. The contribution of the paper lies in extending the analysis to the third module where net benefit maximization occurs at a given level and structure of tariffs. It provides the interface between least-cost and cost-benefit analysis in the power sector by using information contained in the least-cost investment plan to identify and quantify benefits. By itself, least-cost analysis says nothing about the economic merits of an investment program or project since even a least-cost program may have costs that exceed its benefits. Whenever possible, it is necessary to consider whether benefits are adequate. Hence, least-cost analysis is a necessary but not sufficient condition for maximization of net benefits. Both least-cost and cost- benefit analysis are required together to ensure maximization of net benefits. By highlighting the issues involved in making the transition from least-cost to cost benefit analysis in power sector investment planning, Che paper provides a feasible and more rigorous approach Co economic analysis of investment in power system. It addresses the problem of the comparison of costs and benefits in the power sector to determine the volume of investment to the power sector and its allocation within its major components.