This paper discusses the need for an integrated analysis of investment and financing decisions in the context of electricity generation capacity addition planning. The traditional mathematical programming model for investment planning and its potential enhancement to encompass financing decisions in a unified framework have been discussed. The integrated investment-finance model for a power system is formulated. The model is implemented for a well-known investment planning case study and the various investment-financing interactions have been discussed. The results indicate that the interaction of financing and investment decisions could be very significant and needs to be accounted for in capacity planning optimization exercises. This is particularly relevant for utilities in a competitive environment.
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Majumdar et al. (1999) studied this question.
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