Dynamics of generation investments under uncertainty in the Paraguayan power system

In recent years, the demand of electricity in Paraguay has grown steadily. Thanks to large generation work, among which are binational companies, currently the installed capacity reserve margin is sufficient to serve the demand. However, projections indicate that this reserve margin would be exhausted in the medium term, so it is appropriate to analyze the viability of new investments in generation in order to accompany the growth in demand. In this sense, the decision to invest in generation plants, due to their characteristics, is made difficult due to the unpredictability in the growth of demand. In this sense, the use of simulation models is very useful to study the variables of the system and their evolution over time. This work is based on the Systems Dynamics simulation approach (SD), which allows representing the complexities of investments in generation considering a value of flexibility in said investments through the Real Options (RO) technique, taking as a case study to the Paraguayan electrical system. Although it has been found that generation expansion models based on DS are normally applied to deregulated electricity markets with a mostly thermal generation technologies, this work proposes an alternative since the Paraguayan electricity system is characterized by being vertically integrated and with a purely hydroelectric generation park. The development of this work reveals that it is feasible to study the evolution of installed generation capacity based on the uncertain growth of demand in vertically integrated electricity markets with a purely renewable generation park.