Time Horizons in Energy Planning Models

Abstract

End effects are distortions in policy and valuation caused by planning over a finite time period rather than over the indefinite future. This paper describes and compares five methods for mitigating end effects. These techniques provide a linkage between the time span of active planning and the subsequent period that is not actually considered in the planning problem. A good procedure for reducing end effects will allow a model builder to reduce the length of the planning period. This can result in considerable savings in computation costs or, possibly more significantly, the reduction of the planning periods length can allow for enriching other aspects of the model. An appendix describes in detail how to use the most promising method, called the dual equilibrium approach, on typical large scale energy models.

Without implicating them, I would like to thank Jerry Karaganis, Rich Richels, and other EPRI staff members for encouragement and many positive suggestions, Mr. K. C. Huang for ably performing the computations, and Bill Ziemba for his help in editing this paper. This research was supported by EPRI.