Analysis of strategic investments in electricity generation capacity under uncertainty

In this paper we analyze the behavior of a firm when faced with the need to build new capacity among a number of alternative technologies. We formulate a bilevel problem that models this very behavior. The main contribution of this work is the introduction of uncertainty in the lower level, which represents the market and which is made using a conjectured-price-variation approach. With this formulation we are able to observe the impact of uncertainty of various degrees of oligopoly on the market, which yields a more realistic assessment than assuming only one hypothesis like perfect competition or the Cournot oligopoly. In the objective function of the upper level, the firms net present value is maximized. Furthermore a study case is presented, results are analyzed and compared to perfect competition, an intermediate oligopolistic market situation and Cournot oligopoly.