The Value of Flexibility in Long-term Energy Planning Decisions


Climate change is probably the biggest challenge worldwide today. Therefore, acting quickly is required. However, since there are many uncertainties related with energy systems (such as, the evolution of technology, the evolution of prices, and the changes in power consumption behavior), making too much commitment with todays' technology and prices might not be the best alternative. As these uncertainties are revealed over time, adding flexibility in today's decisions can have a great value. In this talk, I will show that adding flexibility to the energy planning decision process (like the option to wait and see) may be valuable and that the value of flexibility increases as more uncertainty is handled. Although flexibility is not for free, I will show, through a couple of examples, that it may not be the best decision to invest as quickly as possible in an environmentally-friendly solution, as uncertainty is increasing in energy systems. On the contrary, adding flexibility today is crucial in order to be able to adapt decisions as uncertainty is revealed. In this sense, having some economic tools that estimate the value of the flexibility at every point in time is very important to make efficient planning decisions in the energy sector.

Enzo Sauma, Stanford Luksic Visiting Scholar, Winter 2022

Enzo Sauma is a Professor of the School of Engineering and the Director of the UC Energy Research Center at the Pontificia Universidad Catolica de Chile. He earned both a Ph.D. (Dec. 2005) and a M.S. (Dec. 2002) in Industrial Engineering and Operations Research at the University of California, Berkeley. He also holds a B.Sc. and a M.Sc. in Industrial Engineering from Pontificia Universidad Catolica de Chile. His interests include power systems economics, environmental economics, mathematical programming, energy efficiency, renewable energy, and energy policy. He has received several international awards (INFORMS, ICORAID, NEXUS-Fulbright, etc.). He is a member of INFORMS, IAEE, AAAS and Senior Member of IEEE.

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