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Procedia Environmental Sciences 00 (2011) 000000 Energy Procedia 14 (2012) 681 688

Procedia Environmental Sciences

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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

* Liu Yuexin. Tel.: +86-0371-6790-3139. E-mail address: thomasxiong@sina.com.

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

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introduce FACTS into the transmission grid investment. Consequently it has the great significance to propose effective strategies to reduce the risks on transmission grid investment. Till now, lots of research on transmission grid investment decision-making has been done. After analyzing the transmission investment issue in which FACTS devices were included, paper [8] proposed a new approach for investors to obtain the optimal investment decisions. Based on the real option theory and non-cooperative game theory, a delay option game model on transmission grid investment decision-making was proposed in [9], providing a foundation. 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]. Considering the autonomy of power market entities and the uncertainty of power market sufficiently, a multi-agent based decision-making model on transmission grid investment was proposed in [11]. Fuzzy real option method was used in [12] to analyze the transmission investment decision under uncertain environment. Technology Readiness Assessment (TRA), proposed by Secretary of Defense, has been widely used in risk management of military technology recently [13-14]. It also provides a new way to the investment decision-making in our country. In this paper, we just apply the theory to analyze the decision-making issue of smart transmission grid. Firstly, the investment should be divided into some efficient stages according to technology readiness levels; secondly, a decision-making model on stage financing is constructed based on technology readiness to determine the optimal investment scheme; finally, the efficiency of the model is validated through an example in an IEEE 24-bus system. 2. Analysis on technology readiness of smart transmission grid 2.1. Technology readiness Technology readiness (TR) is a general indicator to assess the readiness of technology development by many government agencies, especially NASA and DOD. TR indicates the maturity of technology development in some specific related systems and projects. Every technology consequentially has a process of development and validation, which can be divided into several stages. Technology readiness level (TRL) is a standard to measure and evaluate the technology readiness degree, which provides a unified common language for the management and research institutions [15]. TRL has now developed to 9 levels: 1) TRL1, Basic principles observed and reported; 2) TRL2, Technology concept and/or application formulated; 3) TRL3, Analytical and experimental critical function; 4) TRL4, Component and/or breadboard validated in laboratory environment; 5) TRL5, Component and/or breadboard validated in relevant environment; 6) TRL6, System/subsystem model or prototype demonstration on the ground or in space; 7) TRL7, System prototype demonstrated in a space environment; 8) TRL8, Actual System completed and flight qualified through test; 9) TRL9, Actual system flight proven through successful mission operations. 2.2. Decision-making analysis on stage financing for smart transmission grid based on TR Introducing TR theory, the research and investment on transmission grid can also be divided into several levels. Compared to one-off financing, stage financing will be more flexible. That is because in stage financing, investors can modify upper financing decisions according to the latest information. Figure 1 illustrates the procedure to analyze the stage financing decision-making.

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Fig. 1 Analysis process of decision-making on stage financing for smart transmission grid investment based on TR.

1) According to TRL, divide the investment into several stages. 2) Construct the assessment model on optimal decisions for different investment schemes. 3) Basing on the assessment model, calculate the indicator values of all the investment schemes. 4) Compare the schemes and their combinations, choose the optimal one. 3. Decision-making model on smart transmission grid investment based on TR 3.1. Modeling In this section, a decision-making model based on TR will be constructed. In the modeling, TRL is a measurement of the finishing degree at each stage, and the maximal probability that the project achieves TRL8 will be the objective function. Assume that each alternative program starts at a certain TRL, and then upgrades according to a certain probability. The total investment cost is fixed, while at each stage the investment is flexible. The increasing of the investment on one project will raise the probability of TRL transitting. At any stage, the initial state set can be denoted as H ={1,2,3,4,5,6,7,8,}, where 1,2,,8 indicates the TRL that the program has reached, and indicates giving up investment. The state set of investment decision and the funds at the n -th stage can be written by
( Sn , M n ) ( H ) R+
iI

(1)

Where Sn ( S n H ) is the state of the investment program, and M n is the investment funds; I is the amount of alternative programs; R+ is the matrix of investment funds for each program. The decision set at the n -th stage can be given by
X ( Sn , M n ) = ( X n , M n +1 ) {0,1}
I
I L

R+

(2)

Where X n ( X n {0,1} , X in =0) is decision-making variable; X in =0 means abandoning the i -th program; X in =1 means executing the i -th program; L indicates the number of TRLs. So far, the decision-making model based on TR, whose objective function is maximal probability that the project achieves TRL8, can be constructed as
( X n , M n+1 )X ( Sn , M n )

max

( E {Fn+1 (Sn+1 , M n+1 ) | Sn , X n })

(3) (4)

s.t.

iI ,lL

Cnil X nil M n

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lL

X nil 1, i I

(5) (6) (7)

X nil = 0, if Sni = ; i I , l L
M n +1 = M n Cnil X nil
iI ,lL

Where Cnil and X nil respectively means the investment cost and the decisionmaking variable of the i -th program at the n -th stage when the technology readiness level is l ; X nil =0 means giving up to invest the i -th scheme when the technology readiness level is l , while X nil =1 means executing it. 3.2 Model solution Backward induction is applied to solve the decision-making model, and the solution procedure is: Firstly, calculate the maximal probability that the alternative program achieves TRL8 at the last investment stage (the N -th stage), and denote it as f N (S N , M N ) :
f N ( SN , M N ) =
( X N , M N +1 ) X ( S N , M N )

max

1 = 8 | S Ni , X Nil }) (1 P {Ci , N +1
iI

(8)

Secondly, calculate the maximal transition probability at the ( N 1 )-th investment stage:
f n 1 ( Sn 1 , M n 1 ) =
( X n1 , M n )X ( Sn1 , M n1 ) Sn H

max

f n ( Sn , M n ) P {Sn | Sn 1 , X n 1}

(9)

Thirdly, calculate the maximal transition probabilities according to equation (9); Finally, according to the decision-making index value of each program, choose the best investment program or the combination of these programs. 4. Case study In this chapter, an IEEE 24-bus system will be used to analyze our decision-making model. The initial structure is shown in figure 2, where the length and the transmission capacity can be referenced in [16]. In this case, an investment project is considered to increase capacity of the line between node 11 and node 13 (L1), and the line between node 15 and node 21(L2). There are three optional programs: transmission lines investment, TCSC devices investment, and the combination of the above two. Based on TRL, the investment can be divided into 3 stages ( N =3), and at the end of the third stage there is at least one investment program that enables the transmission project to reach TRL8. Figure 3 shows the TRL transition at the whole investment stage. And Table I (a), (b), (c) respectively list the state transition probability of each investment program calculated by using Delphi algorithm.

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Fig. 2 IEEE 24-bus system.

Fig. 3 TRL transition at the whole investment stage.

Table I (a).State transition probabilities of Transmission line. Initial TRL End TRL Probability 4 4 0.3 4 5 0.1 4 6 0.4 4 7 0.15 4 8 0.05 5 5 0.1 5 6 0.4 5 7 0.3 5 8 0.2 6 6 0.1 6 7 0.5 6 8 0.4 7 7 0.1 7 8 0.9 8 8 1

Table I (b). State transition probabilities of TCSC Initial TRL End TRL Probability 4 4 0.1 4 5 0.1 4 6 0.5 4 7 0.2 4 8 0.1 5 5 0.2 5 6 0.5 5 7 0.2 5 8 0.1 6 6 0.1 6 7 0.6 6 8 0.3 7 7 0.15 7 8 0.85 8 8 1

Table I (c).State transition probabilities of Transmission line and TCSC Initial TRL End TRL Probability 4 4 0.2 4 5 0.1 4 6 0.45 4 7 0.18 4 8 0.07 5 5 0.15 5 6 0.45 5 7 0.25 5 8 0.15 6 6 0.1 6 7 0.55 6 8 0.35 7 7 0.12 7 8 0.88

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Assume that the smart transmission investment budget is 6 billion yuan RMB, and the investment cost of transmission line is 2,815,600 yuan RMB per kilometer [17], while the investment cost of TCSC is 460 yuan RMB per kvar [18]. The decision-making model is then used to calculate the probability that each investment program achieves TRL8 (see Table 2), and the investment funds at each stage are shown in Figure 4.
Table 2.The optimal probobility for each investment program to reach TRL8 Investment program Probability Transmission line 0.59 TCSC 0.76 Transmission line and TCSC 0.68

Table 2 shows that the probability that transmission line investment program achieves TRL8 is the smallest, while the probability of TCSC devices investment program is the largest. Besides, if transmission line and TCSC devices are invested at the same time, the probability is between the above two. 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 cost of TCSC is lower than that of transmission line. Therefore, in a case of a fixed total cost, in order to maximize the probability that the transmission investment projects achieve TRL8, TCSC devices program should be chosen.
Investment funds (billion yuan)

3.5 3.0 2.5 2.0 1.5 1.0 0.5 0

The first stage

The second stage

The third stage

Fig. 4 Allocation of funds in various investment stages of smart transmission grid.

We can learn from Figure 4 that, in the smart transmission investment, the investment funds decrease from one stage to another: it is the largest at the first stage, and the smallest at the third. This is in connection with TRL that each stage should achieve: the first stage is expected to achieve TRL4, TRL5 and TRL6; the second stage is expected to achieve TRL6, TRL7 and TRL8; the third stage is expected to achieve TRL8. According to the TRL classification criterion, the first stage, which is the key link of technological input, needs to invest more money, while the funds input at the second and the third stage gradually decrease with the development of research. Therefore, in the smart transmission investment, it needs to arrange the investment funds according to actual needs to improve the efficiency in use of funds. 5. Conclusions Technology readiness theory is applied to the decision-making for smart transmission grid investment in this paper, based on which a decision-making model on stage financing is constructed. According to TRL, the transmission investment can be divided into three stages. Three investment programs: transmission line, TCSC devices and the combination of the above two, are compared through an IEEE-24 bus system.

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The conclusions indicate: in the smart transmission investment, the probability of achieving TRL8 by TCSC investment program is higher than that by transmission line program, and if these two programs are invested at the same time, the probability is between the above two. Therefore, TCSC devices should be given a priority in the smart transmission investment. In addition, the investment risk can be efficiently controlled by dividing the investment into several stages based on TRL, arranging reasonable investment funds, and appropriate strategies for each stage according to actual needs. References
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Biographies
Liu Yuexin (1966- ), received both of the Bachelor and the masters degree in Xian Jiaotong University. In his career, huge power system planning and its investment management has been his main work for a long time. Currently, he is the chief director of the smart grid center, Electic Power of HeNan, which is charged with planning and application of smart grid. Wang Gang (1966- ), professor-level senior engineer. In his career, huge power system planning and its investment management has been his main work for a long time. Currently, he is Chief Engineer of Electic Power of HeNan, State Grid Corporation of China. Xiong Haoqing (1979- ), Ph.D., postdoctoral at the station. His reach interests are smart transmission grid, power system planning and operation. Currently, he is working in Smart Grid Center, Electic Power of HeNan, State Grid Corporation of China. Meng Yuanjing (1955- ), professor-level senior engineer. His reach interests are smart grid, power system planning and operation. Tang Yong (1959- ), Ph.D., professor-level senior engineer. He is mainly engaged in the analysis software development of power system and the research of power system analysis engineering. Sun Huadong (1975- ), Ph.D., senior engineer. His reach interests are smart grid, power system planning and operation. Yi Jun (1980- ), Ph. D.. His reach interests are smart grid, power system planning. Xiong Chuanping (1980- ), Master. His reach interests are smart grid, power system planning.