Diversification of fuel costs accounting for load variation

A practical mathematical programming model for the strategic fuel diversification problem is presented. The model is designed to consider the tradeoffs between the expected costs of investments in capacity, operating and maintenance costs, average fuel costs, and the variability of fuel costs. In addition, the model is designed to take the load curve into account at a high degree of resolution, while keeping the computational burden at a practical level. The model is illustrated with a case study for Indiana's power generation system. The model reveals that an effective means of reducing the volatility of the system‐level fuel costs is through the reduction of dependence on coal‐fired generation with an attendant shift towards nuclear generation. Model results indicate that about a 25% reduction in the standard deviation of the generation costs can be achieved with about a 20–25% increase in average fuel costs. Scenarios that incorporate costs for carbon dioxide emissions or a moratorium on nuclear capacity additions are also presented.