March 13, 2013


Combined MC-CBA methodology for decision making on Smart Grid

The Discussion Paper analyses the weaknesses of the CBA and investigates the MCA approach. With the aim to outclass the CBA shortcomings, this discussion paper proposes to integrate the CBA into an MCA assessment framework. The proposed approach preserves the strengths of both CBA and MCA and identifies the best alternative according to its monetary and non-monetary performances. The MC-CBA methodology helps the decision maker identify the best Smart Grid investment option; the final aim is to provide a reliable support tool for orienting effectively the investments and the regulatory policies on Smart Grids.

Smart grid projects are responsible of wide range impacts, which span from the electrical power system to the entire society. In general, the investment projects are assessed with a Cost-Benefit Analysis (CBA), which requires quantifying the impacts for converting them in monetary terms. In the smart grid context, not all impacts are quantifiable and/or monetizable; therefore, the CBA lacks in describing completely the smart grid potential. With the aim to outclass the CBA shortcomings, this discussion paper proposes to integrate the CBA into a Multi-Criteria Analysis (MCA) framework. The combined approach preserves the strengths of both CBA and MCA and identifies the best alternative according to its monetary and non-monetary performances. Furthermore, the stakeholders’ point of view is directly collected and the preferences are explicitly related to the decision-making problem under analysis. To achieve a common smart grid assessment framework, the MC-CBA methodology relies on acknowledged guidelines on project analysis. The assessment approach described in this report decomposes the decision-problem by analysing the impacts in three main areas: the economic area, the smart grid development merit area, and the externalities area. The MC-CBA methodology helps the decision maker identify the best smart grid investment option; the final aim is to provide a reliable support tool for orienting effectively the investments and the regulatory policies on smart grids.


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