Jesper Felstedt & Morten Middelboe Pedersen: Modelling Investments in the Electricity Sector, Master's thesis, DTU, Technical University of Denmark, 2005.


This master thesis concerns the area of modelling investments in a liberalized combined heat and power sector (CHP sector). The thesis shortly presents the economic theory, which describes a deregulated market with perfect competition. It is presented which parameters are used when calculating the net present value (NPV ) of an investment, and that investments are only undertaken if the NPV is positive. This is used to formulate a simple linear, partial equilibrium model, describing the CHP sector, with the possibility of investments. Using KKT-conditions it is proved, which necessary conditions the model has to fulfill, in order for the NPV of investments found by the model, to be positive. The knowledge from the simple model is used to improve the modelling of Investments in the partial equilibrium model, Balmorel, which is used to simulate a liberalized CHP sector.Finally the effects of the improvements are investigated, and the improved Balmorel is used in a small case study of investments in Lithuania.

Keywords: Net present value NPV , investements in the combined heat and power sector, Balmorel, partial equilibrium models, neoclassical economic modelling, Linear programming and KKT-conditions.

The thesis is in Danish.