The impact of convexity on expansion planning in low-carbon electricity markets

Abstract Expansion planning models are tools frequently employed to analyze the transition a carbon-neutral power system. Such provide estimates for an optimal technology mix and operating decisions, but they also often used obtain prices subsequently calculate profits. This paper analyzes impact of modeling assumptions on convexity system outcomes and, in particular, investment cost recovery. Through case study, we find that although there is long-term equilibrium producers under convex models, introducing realistic constraints, such as non-convexities/lumpiness investments, inelastic demand or unit commitment leads profitability challenges. We furthermore demonstrate considering only short-term marginal costs market-clearing may potentially create significant missing-money problem caused by missing-market dual degeneracy 100 percent renewable