Electr Eng DOI 10.1007/s00202-015-0330-9 ORIGINAL PAPER The implementation of capital budgeting analysis for distributed generation allocation problems Rene Prenc · Davor Škrlec · Marijana Živi´ c - Durovi´ c Received: 1 May 2014 / Accepted: 25 January 2015 © Springer-Verlag Berlin Heidelberg 2015 Abstract For the last 7 years, the Republic of Croatia has been witnessing a sudden increase of distributed energy resources connecting to its power system. However, a signif- icant problem is how to find the financial equilibrium which will satisfy the independent power producers on one side and the distribution system operator on the other. In this paper, the authors discuss the capital budgeting analysis of distrib- uted generation projects with a goal of maximizing their net present values. The evaluation of net present values will be the central tool for finding the optimal position and size of dis- tributed generation units in the network. By simultaneously minimizing active power losses the interests of distribution system operator will not be neglected in this study. The power production of distributed generation and power consumption of network loads will be modeled with characteristic average daily power curves with discrete hour intervals. The prob- lem will be solved using genetic algorithm, and realized in Matlab programming environment. Keywords Net present value · Distributed generation allocation · Average daily power curves · Genetic algorithm R. Prenc (B ) Faculty of Maritime Studies Rijeka, University of Rijeka, Studentska ulica 2, 51000 Rijeka, Croatia e-mail: prenc@pfri.hr D. Škrlec Faculty of Electrical Engineering and Computing, University of Zagreb, Unska 3, 10000 Zagreb, Croatia e-mail: davor.skrlec@fer.hr M. Ž. - Durovi´ c Faculty of Engineering, University of Rijeka, Vukovarska 58, 51000 Rijeka, Croatia e-mail: marijana.zivic@riteh.hr 1 Introduction The main incentive for distributed generation in the Repub- lic of Croatia was ensured with feed-in tariffs, which were enacted as a part of subordinate legislation by Croatian parlia- ment in July 2007. Since then the private and public sector has invested great resources into its development and research. The implemented feed-in tariff (FIT) system in Croatia ensured financial injection for produced energy of distrib- uted generation (DG) units. Different types of DG units will receive different incentives (e/MWh), according to the FIT system. DG types that receive incentives include renewable energy sources (usually solar, wind and small hydro power plants) and power stations which do not depend on an inter- mittent primary energy source. The latter can run on fossil or renewable fuel (like biogas or biomass). One important exception in the FIT system concerns the small fossil-fueled power stations, which must simultaneously produce electric- ity and heat to receive feed-in tariffs (cogeneration units). The power stations that run on renewable fuel receive feed- in tariffs without the need for additional heat production. As opposed to large central power plants, distributed sources have much less total capital investment and operation and maintenance costs, their location is easier to obtain and have less negative impact on the environment. Although their per unit capital costs (e/kW) are generally relatively high, the rapid development of DG technology is a key factor which forces those costs to drop over time. The main limiting factors for the connection of new DG units in the existing distribution network are its voltage and thermal constraints, which must not be breached. Also, with the proper integration of DG units, the losses in the distrib- ution power networks can significantly drop, but if they are placed and sized non-optimally, they will raise the amount of network losses [1–8]. Since the distribution system opera- 123