Optimal Location of Thermal Power Plants: Closer to Demand Centers or Fuel Depots?

Abstract

The location of a thermal power plant in a country with dispersed demand centers and limited fuel supply sources is an important decision as it greatly impacts electricity supply cost. This study develops an optimization model to support decision making concerning the location of new and existing thermal plants by a centralized planner. The model offers a platform for decision makers to navigate the trade-off between locating a thermal plant either close to fuel depots to reduce fuel transportation cost or close to demand centers to reduce transmission losses and cost. The proposed model is inspired by the decision of the government of Ghana to relocate an existing thermal plant close to a major demand center yet far away from its fuel source. The model is unique as hitherto such decisions have been analyzed mainly using a Multi Criteria Decision Making model that is unable to accurately capture the magnitude of the
important factors. Results from applying the model to the relocation problem of the government of Ghana while supportive of the government’s decision, also sees the cost of electricity supply increasing by about 0.06% (roughly US$1.5 million annually over a 10-year period). A suggested relocation by the model will reduce electricity supply cost by about 0.1% compared to the government’s decision.