Optimal Investment in Hydroelectric Energy

Özet

Assuming that the total energy demand is satisfied by oil and hydroelectric energy, optimal investment in hydroelectric production capacity which is a function of the size of the dam and the water availability, which changes by seasons, is analyzed using optimal control theory. Investment cost in dam capacity depends not only on the purchase cost of additional capacity but also on the installation of that capacity. The optimal investment is to invest heavily in early stages by gradually decreasing it until the long-term equilibrium point is reached. The equilibrium point also oscillates but stable. However, since the dam size is usually large compared to the amplitude of the oscillation, the optimal path and the equilibrium level of investment can be considered to be functions of relevant parameters of the problem only.