Lawrence Berkeley National Laboratory

We model the operating decisions of a commercial enterprise thatneeds to satisfy its periodic electricity demand with either on-site distributed generation (DG) or purchases from the wholesale market. While the former option involves electricity generation at relatively high and possibly stochastic costs from a set of capacity-constrained DG technologies, the latter implies unlimited open-market transactions at stochastic prices. A stochastic dynamic programme (SDP) is used to solve the resulting optimisation problem. By solving the SDP with and without the availability of DG units, the implied option values of the DG units are obtained.