Research on Incremental Distribution Network Investment Strategy
Considering Uncertainty of Income
Youzhong Miao
, Feng Zhao
, Hui Li
, Guangbiao Wang
, Xinjian Chen
and Ning Wang
State Grid Jibei Electric Power Company Limited, 100054, Beijing, China
Tianjin Tianda Qiushi Electric Power High Technology Co.,Ltd., 300392, Tianjin, China
Keywords: Incremental Distribution Network, Profit, Uncertainty, Investment Decision.
Abstract: In the market-oriented environment, the investment and operation of incremental distribution network faces
multiple uncertainties. By analyzing the typical operation mode of incremental distribution network in China,
this paper summarizes that the sources of income uncertainty of incremental distribution network mainly
include power growth volatility, construction scheme, power grid investment, multi energy complementary,
energy Internet construction. Finally, based on the real option theory, the investment decision-making
elements of incremental distribution network under uncertain environment are proposed. This study can
provide support for operators' investment decision-making.
Since the notice on standardizing the pilot reform of
incremental distribution business was issued in 2016.
As of August 2020, five batches of 483 incremental
distribution pilot projects have been approved (F, S
2018). With the investment and operation of a large
number of incremental distribution network pilot
projects, the investment and operation mode of
incremental distribution network is gradually clear,
and the relevant policies and construction
specifications are more clear. However, the gradual
deepening of China's power market-oriented reform
has further intensified the competition in the
incremental distribution market, and the uncertainty
of operating income has led to the withdrawal of a
large number of incremental distribution operators
who get up early and enter the market (H, B, T, E
In the existing research, by referring to the
relevant methods of power grid planning in China, the
investment strategy of incremental distribution
network is analyzed based on load forecasting,
investment planning and benefit evaluation (Z, Y, W
et al. 2020). In terms of load forecasting, regional
saturated load forecasting considering load density is
an important research method. This is due to the lack
of historical data in the incremental distribution
network Park, resulting in the poor applicability of
the traditional prediction algorithm based on
historical data (T, P, W, et al. 2019). In terms of
investment planning, the investment decision-making
methods, principles and strategies are given mainly
combined with the investment income model of
incremental distribution network. Some literature
have also constructed constant capacity optimization
methods such as distributed generation and energy
storage under incremental distribution network for
specific scenarios. In terms of benefit evaluation,
based on the existing project technical and economic
analysis methods, the influencing factors of
incremental distribution network investment benefit
are analyzed by introducing DEA, VaR and other
methods (Q, W, Y et al. 2021). This paper analyzes
the uncertain factors in the market-oriented
environment to adapt to the incremental distribution
network operation scenario with great uncertainty
and provide guidance for the investment decision-
making of incremental distribution network
Miao, Y., Zhao, F., Li, H., Wang, G., Chen, X. and Wang, N.
Research on Incremental Distribution Network Investment Strategy Considering Uncertainty of Income.
DOI: 10.5220/0011359900003440
In Proceedings of the International Conference on Big Data Economy and Digital Management (BDEDM 2022), pages 956-960
ISBN: 978-989-758-593-7
2022 by SCITEPRESS Science and Technology Publications, Lda. All rights reserved
The service scope of incremental distribution
network mainly includes two aspects: first, for
distribution network, some basic services must be
provided, including distribution network dispatching,
operation, construction, transformation and providing
power supply services to users. Second, special
policy services under the background of power
market reform can be carried out, which are defined
here as value-added services, such as comprehensive
energy services of cooling, heating and power, agent
users to participate in market-oriented transactions,
etc. the specific transaction types include power
purchase and sale, auxiliary services, carbon trading,
In terms of basic business, the distribution service
fee will be the main revenue source of the power
supply service of the incremental distribution
network company. At the same time, the
administrative measures for orderly liberalization of
distribution network business points out that the
distribution price of the incremental distribution area
shall be formulated by the provincial (District,
municipal) price competent department in
accordance with the relevant provisions of the
national transmission and distribution price reform
and reported to the national development and Reform
Commission for the record. Before the distribution
price is approved, the transmission and distribution
price of the provincial power grid shared network
corresponding to the access voltage level of the
power selling company or power users shall be
deducted from the transmission and distribution price
of the provincial power grid shared network
corresponding to the access voltage level of the
distribution network.
In terms of value-added business, by signing
energy-saving service contracts with customers, we
provide customers with a complete set of energy-
saving services, including energy audit, project
design, project financing, equipment procurement,
engineering construction, equipment installation and
commissioning, personnel training, energy-saving
confirmation and guarantee, It is a business operation
mode to recover investment and profit from the
energy-saving benefits obtained by customers after
energy-saving transformation. The operation modes
of contract energy management mainly include:
equipment leasing type, energy-saving benefit
payment type, energy-saving quantity (rate)
guarantee type, energy-saving benefit sharing type
and long-term trust type of energy cost.
Table 1: Basic operation mode of contract energy
Concrete content
rental type
The customer leases energy-saving
equipment from the service company.
After the lease expires, the equipment is
transferred to the customer free of
charge. The customer pays the
equipment rent to the service company
on a monthly or quarterly basis.
When the customer entrusts the service
company to carry out energy-saving
transformation, a certain proportion of
advance payment shall be paid first, and
the balance shall be paid with energy-
saving benefits.
All investment in energy-saving
projects shall be provided by the service
company, and the whole process service
shall be provided to ensure the energy-
saving effect. The customer shall pay
the cost of energy-saving transformation
projects; If the promised benefits are not
achieved, it shall bear the
responsibilities and losses in accordance
with the contract.
The initial investment of the project
shall be paid by the energy conservation
company. During the contract period,
the energy conservation service
company shall share the consumption
reduction benefits brought by energy
conservation transformation with
customers. Upon the expiration of the
contract, all energy-saving equipment
and long-term income shall belong to
the customer.
cost long-
On the premise of ensuring the reduction
of customers' energy costs, all
customers' energy costs are managed by
the energy conservation service
company. The long-term operation,
maintenance, renovation and re
investment of energy-saving equipment
are undertaken by the energy-saving
service com
Research on Incremental Distribution Network Investment Strategy Considering Uncertainty of Income
The uncertainty of investment return comes from
macro environment and micro environment.
Specifically include:
(1) Growth fluctuation of load and electricity
Most of the revenue of incremental distribution
network operation comes from power supply. On the
one hand, this part of revenue depends on the
transmission and distribution price, on the other hand,
it is related to load and electricity. In the coming
period of time, the transmission and distribution price
will basically remain stable under the control of the
government and will not fluctuate greatly. The
fluctuation of electricity will affect the operation
income of incremental distribution network, then
affect its investment value, and determine the option
value of incremental distribution network. There are
many factors affecting power consumption, mainly
including economic development, industrial
structure, industry prospect, climate, energy
substitution, etc.
(2) Investment uncertainty caused by different
construction schemes
In the process of power grid planning, different
power grid construction schemes can meet the future
user load. Different construction schemes will have
great differences in line structure and substation
quantity. At the same time, the cost of materials and
equipment used for different types of users is also
different. Therefore, different construction schemes
have differences in project investment cost. The
project investment cost is uncertain, which leads to
the uncertainty of incremental distribution network
income. At the same time, technological progress will
also affect the power grid construction scheme, thus
affecting the investment cost.
(3) Uncertainty caused by the stimulation of
power grid investment projects
Power grid investment and construction, on the
one hand, is used to meet the needs of existing power
users, and will have a positive stimulating effect at
the same time. Especially for the industrial park,
industrial enterprises have high requirements for the
guarantee of power supply quality and safety. The
complete power grid facilities in the park will
facilitate investment attraction, so as to attract
enterprises to settle in the park. The quality of
distribution network and the length of construction
cycle play an important role in this process.
(4) Uncertainty caused by multi energy
The future power system will no longer be
independent. Especially for enterprises with multiple
energy needs, integrated energy services will better
meet the needs of users. Therefore, the meaning of
future incremental distribution network is not only
the power grid, but also the pipelines for cooling and
heating. In this context, the coordinated supply of
multiple energy sources in incremental distribution
network is very necessary, and the way of
complementary, coordinated and optimal scheduling
of multiple energy sources makes the income of
incremental distribution network uncertain.
(5) Uncertainty caused by energy Internet related
In the context of energy Internet, the power grid
will realize island operation in the form of micro-grid
in the future, and the large power grid will be used as
the auxiliary of micro-grid to maintain the stability of
power grid. For specific projects, the investment in
energy supply and consumption equipment such as
distributed generation, energy storage and charging
vehicle charging pile in incremental distribution
network will not only increase the investment cost,
but also bring additional benefits, which is uncertain.
Among many traditional evaluation methods, net
present value method is the most commonly used
method. However, considering that the power grid
project has the characteristics of high cost, high
technology, long construction cycle, large time span
and many uncertain factors, at the same time, the
materials for power grid construction are special, and
it is very difficult to sell and realize power grid assets.
Next, combined with the characteristics of the above
power grid project construction, the traditional net
present value method and real option method are
compared in the economic evaluation of power grid
The decision-making suggestions obtained by
traditional methods are limited to investing now or
not. The option method can provide a variety of
investment strategy suggestions, including when to
invest, the choice of investment scale, when to exit,
whether to invest step by step and so on. Under the
traditional method, investment decision-making only
BDEDM 2022 - The International Conference on Big Data Economy and Digital Management
makes unilateral consideration, that is, according to
whether the net present value is greater than zero, it
appears in the decision-making suggestions of
investment and no investment at present, but
entrepreneurs or managers rarely make such a simple
conclusion, so such a quantitative method is difficult
to meet the needs of investment decision-making.
The real option method should not only consider the
traditional net present value, but also consider the
increase or decrease of enterprise options caused by
investment. Therefore, a variety of decision-making
suggestions can be obtained.
Investment nowNo investment now
Investment critical point
Figure 1: Discounted cash flow investment decision.
Option value
Maybe invest
in the future
Investment now
Possible future
Never invest
Figure 2: Real option model investment decision.
Using the real option method, we can also get
more specific and meaningful decision-making
suggestions. For example, according to the
company's resources, changes in investment and
operating costs, technological progress, demand
change forecast, competitor investment strategy, etc.,
consider the "best" investment opportunity,
investment order, investment "best" scale, whether to
make (forward or backward) integrated investment,
whether to diversify (invest in original business or
new business), Whether to make international
The investment and operation of incremental
distribution network is multi-stage, which can be
divided into the stage of obtaining investment right
and each stage of power grid investment.According
to the policy requirements of incremental distribution
network, the investor of incremental distribution
network investment and operation needs to be
determined through public bidding. Therefore, in the
initial stage of incremental distribution network
investment and operation, the investment right needs
to be obtained through bidding and other means, so
as to generate the option of investment in the first
stage. When obtaining the operation right, the
investment expenditure to be borne by the investor is
the net fixed asset value of the stock assets of the
distribution network in the park. This part of assets
can be accounted into the incremental distribution
network assets by purchase or price as shares.
Different investment strategies will affect the
investment amount and income distribution of the
distribution network.
The investment income of distribution network in
typical parks is affected by many factors. From the
perspective of income source, its investment income
is determined by the transmission and distribution
power and transmission and distribution power price.
Under the condition that the transmission and
distribution power price of each voltage level is
approved, the investment income of distribution
network comes from the price difference between the
transmission and distribution power prices of
different voltage levels. When calculating the
income, it is necessary to predict the power
consumption of users in the park. This result is the
transmission and distribution power. Therefore, from
this point of view, the uncertainty of distribution
network investment income in typical parks mainly
comes from the price difference of transmission and
distribution price and user power consumption.
Under the control of the government, it is difficult to
adjust the price difference of transmission and
distribution price significantly. Therefore, the
fluctuation of distribution network investment
income in typical parks is mainly affected by the
accuracy of power consumption prediction. From the
perspective of power grid investment, under the
condition of energy Internet, power grid companies
gradually change to comprehensive energy service
providers. In this situation, power grid companies
become more flexible in the investment process.
Research on Incremental Distribution Network Investment Strategy Considering Uncertainty of Income
Under the market environment of the liberalization of
incremental distribution network and the gradual
introduction of competition in the distribution
market, the incremental distribution network
investment faces great uncertainty and the investment
income is at risk. Considering the defects of the
traditional net present value method under the new
situation, the venture capital theory is used to
reasonably evaluate the risk value caused by various
uncertainties based on the real option model, so as to
estimate the investment value more comprehensively.
At the same time, it should be pointed out that with
the gradual deepening of market-oriented reform, the
applicability of real option theory and model will be
greatly increased, which also needs further research.
This work was financially supported by the Science
and technology project of State Grid Jibei Electric
Power Co., Ltd (Research on the strategy of mixed
ownership participating in incremental distribution
investment business).
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