curve (LDC) ABEF for the starting year 0, divided into
two rating periods: peak and off-peak. As demand grows over
time, the LDC increases in magnitude, and the resultant forecast
of peak demand is given by the curve D in Fig. 5(b), starting
from the initial value MW. The LRMC of capacity may be
determined by asking the following question: what is the
change in system capacity costs AC associated with a sustained
338 PROCEEDINGS OF THE IEEE, VOL. 69, NO. 3, MARCH 1981
increment AD in the long run peak demand (as shown by the
shaded area of Fig. 5(a) and the broken line D +AD in Fig.
5(b)). Consequently, the LRMC of generation would be
(AC/AD), where the increment of demand AD is marginal
both in time, and in terms of MW. In theory, AD can be either
positive or negative, and generally the ratio (AC/AD) will vary
with the sign as well as the magnitude of AD. If many such
values of (AC/AD) are computed, it is possible to average
them to obtain LRMC.
In an optimally planned system, the new incremental load
would normally be met by advancing future plant or inserting
new units such as gas turbines or peaking hydro plant (see
Fig. 5(b)). Using a computerized generation planning model,
it is easy to determine the change in capacity costs AC by
simulating the expansion path and system operation, with and
without the demand increment AD. If a more sophisticated
tariff structure having many rating periods is used, then the
LRMC in any rating period may be estimated by running the
computerized system expansion model with a sustained load
increment added to the LDC during that particular period.
This method that simulates the optimal system planning process
is based on the dynamic LRMC concept.
When constraints due to time, data and facilities preclude
this ideal approach, more approximate methods may be used.
Several practical methods of estimating LRMC are analyzed in
[35] and [36]. Simple considerations based on a more static
interpretation of LRMC often yield very good results. Suppose
that gas turbines are used for peaking; then the required
LRMC of generating capacity (LRMCG,,. cap.) may be approximated
by the cost per kW installed, annuitized over the expected
lifetime. This figure must be adjusted for the reserve
margin (M%a)nd losses due to station use (tu%)T.h us a
typical expression would be:
LRMC-. cap. = (Annuitized Cost per kW)
'(1 +RM%)/(l - L,%).
In our basic model, all capacity costs are to be charged to