This paper presents an optimal generation resource planning model based on an expected level of revenue, operation and maintenance costs, transmission charges, load curtailment costs, and the expected level of system reliability. The model considers the volatility of market prices for electricity and fuel, various options for securing investment loans, construction lead time, expected load growth, and transmission congestion costs as major incentives for adding generating capacity to power systems. The proposed planning algorithm will analyse possible sites and markets for new generators, various unit types and capacities, operating constraints, planned and forced outages, timing for the addition of new units, and steps for the decommissioning of old generators. The solution approach is based on the extended Bender decomposition technique. A modified IEEE 30‐bus case study is presented and discussed to exhibit the effectiveness of the proposed resource planning approach.