ESTIMATING THE FLEXIBILITY OF UTILITY RESOURCE PLANS - AN APPLICATION TO NATURAL-GAS COFIRING FOR SO2 CONTROL

Utility planners must cope with large uncertainties concerning fuel prices, environmental laws, power demands, and the cost and availability of new resources. In this situation, flexibility is valuable. A flexible plan is one that enables the utility to quickly and inexpensively change the system's configuration or operation in response to varying market and regulatory conditions. We present a decision tree-based method for quantifying the economic value of flexibility. The method is then used to compare the relative flexibility of natural gas cofiring with other strategies to comply with the acid rain control requirements of the 1990 U.S. Clean Air Act Amendments. For the utility studied, we conclude that cofiring gives the system significantly more flexibility than flue gas desulfurization or switching to low sulfur coal. The reason is that cofiring enables the utility to take advantage of low gas prices or high emissions allowance prices by burning more gas at those times. The value of this flexibility is approximately $0.05 to $0.35 per million BTU of natural gas, or $0.03 to $0.26/MWh of plant output. These values are significant compared to other types of benefits that have been previously quantified for cofiring. We also compare our measure of flexibility with one based on the standard deviation of present worth. The latter perversely finds the least flexible technology (scrubbing) to be the most ''flexible.''