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emand uncertainty is a key concern of electric utility planners. While the greater use of
short lead time technologies provides one possible way to deal with this problem, it is
not clear how they are best deployed. The approach taken in this paper is to examine a
capacity mix model that explicitly accounts for differences in technology lead times. Key
results that are obtained include the characterization of the optimal solution and the
development of a new set of technology screening criteria. In practice, the lead time order
(i.e., the set of available technologies ordered by ascending length of lead time) is typically the
inverse of the so-called merit order (i.e., the set of available technologies ordered by ascending
operating cost). We show that for this case, the optimal solution may be determined with
relative ease. A numerical example demonstrates that some short lead time technologies
screened out by standard planning methods may enter the optimal solution when differences
in lead time are considered, while some long lead time technologies may leave. In addition,
the optimal expected level of reliability may be greater.
(Lead Time; Capacity Planning; Demand Uncertainty; Electric Power Systems)
1. Introduction
Electric utility planners have paid increasing attention
to uncertainty in recent years, because of the greater
volatility of the planning environment and the inability of forecasters to accurately predict key planning
variables. Compounding the problem is the often
lengthy period needed to obtain regulatory approvals,
increasing the effective lead time of new generation
facilities. As a result, the environment in which plants
are brought online and operated often bears little
resemblance to that for which they were planned.
Given the current trend toward increased competition
in the electric power industry, uncertainty may be of
even greater importance in the future.
Electricity demand is a particularly important
source of uncertainty. One possible method of dealing
1526-5501/99/4510/1289$05.00
Copyright 1999, Institute for Operations Research
and the Management Sciences
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2. Model Description
1
if
F 1
if
r
0
if
y F r 1,
F r 1 y F r 0,
y F r 0.
f y.
r r
rR
It gives the expected fraction of time (over all outcomes) during which demand meets or exceeds y. As
a convex combination of inverse load duration curves,
f X ( y) is a monotonically decreasing function. Let y
max{ y: f X ( y) 1} and y min{ y: f X ( y) 0}. If
f X ( y) is strictly decreasing on [ y, y], then the
expected LDC F X may be defined as follows:
F X
y if
f X1 if
y if
0,
0 1,
1.
1291
Figure 1
1292
f Z
r f r Z ir ,
rR
r r
i1,r
rR
cy bY
r i ir
iI rR
r i
iI rR
ir
b n1
Y
r
n1,r
rR
comprising the expected capital, operating, and outage costs, respectively. It is well known that this
function is convex (see, for example, Gardner 1995).
The capacity mix problem (CMP) may be formulated as follows:
min C
subject to y i y ir 0,
y ir 0,
y i 0,
i I L , r R,
i I, r R,
i I L.
3. Optimality Conditions
Since C is convex and the constraints in problem CMP
are linear, it follows that a set of capacities that satisfy
the Karush-Kuhn-Tucker (KKT) conditions is a global
optimal solution. By substituting y i for y ir , i I L , r
R, it is possible to eliminate the nonanticipativity
1
1293
b b
rc i r
j1
f r Z jr 0,
i I S , r R, 1
ji
b b
rc i r
j1
f r Z jr y ir
ji
0,
i I S , r R,
b b
(2)
ci
j1
r f r Z jr 0,
ji rR
b b
ci
j1
y i 0, i I L
and
y ir 0,
(3)
i I L,
i I S , r R.
P j if
P j if
P j if
ij ,
ij ,
ij .
(5)
1294
r f r Z jr y i 0,
ji rR
i I L,
V i 0 1: P i P j , j I ,
i I ,
V Si 0 1: P i P j , j I S ,
i I S .
(6)
The former (V i ) is the set of durations for which
technology i provides electricity at minimum cost
compared to all other technologies. The latter (V iS ) is
the set of durations for which technology i I S
provides electricity at minimum cost compared to all
Figure 2
i max 0, ij ,
i I ,
S
max 0, ij ,
i
i I S ,
i min ji , 1,
i I ,
S
min ji , 1,
i
i I S .
ji,jI
ji,jI S
ji,jI
ji,jI S
V Si
Vi
if
i , i
i i ,
A
otherwise.
S
S
if S
S
i , i
i
i ,
A
otherwise.
i A,
V
If
then
i , j I , j i.
P i P j , V
1b
Si A, i I S ,
V
If
(7)
then
If
i j,
2b
If
i j,
i1
i1,i
i i1,i
3b
Let
Then
i I S
(9)
(10)
if V i A.
V i1 A.
(11)
and j mink I S , k i.
S
ij
i
S
ij
j
if
if
if
(13)
then
S
ij S
i, j I S .
i
j
3a
(8)
i ij j i, j I .
then
S
n1
.
0 n1
Theorem 2. The optimal expected loss-of-load probability satisfies V n1 . The optimal loss-of-load probability
S
in outcome r satisfies r V n1
, r R.
Then
1
V Sj A
and
V Si A.
(12)
1295
F r S
if
i
S
F r S
if
i F r i
S
1,
i
S
1.
i
F X
if
i
F X
if
i F X i
i 1,
i 1.
1296
Figure 3
5. Optimal Solutions
In this section, we use the above results to derive
solutions to the LA, AL, and the most common instance of the ALA case in practice. While the LA and
AL solutions are well known, we repeat them here for
comparison purposes and because the reasoning used
for their proofs is employed in the analysis of the ALA
case.
iS A, i I S ,
Theorem 4. 1) Let I S I. Then if V
the optimal LA solution is
y ir F r i,i1 F r i1,i ,
i I, r R,
i I,
0 i1
i i i1
S
S
0 i1
S
S
i1
,
i
i
for
i 1, m 1,
for
i m 1, n,
(14)
S
where 0 1 and m1
1. Let
g
h
i I L:
if
i i
1
if
i I S : S
S
if
i
i
m 1,
if
m 1,
1,
0 1,
1.
1297
P f y
min P f y min P f y.
y P g f Xy f X y
h f r y
yi
y ir
rR
iI L
rR
iI S
(15)
1298
F X i,i1 F X i1,i ,
i 1, . . . , g f X y* 1,
y* F X i1,i ,
i g f X y*,
0,
i g f X y* 1, . . . , m,
0,
i m 1, . . . , h f r y* 1, r R,
F r i,i1 y*,
i h f r y*, h f r y* n, r R,
F r i,i1 F r i1,i ,
i h f r y* 1, . . . , n, r R,
i 1, . . . , g f X y* 1,
y ALA
y AL
i
i ,
y ALA
y AL
i
i ,
i g f X y*,
i g f X y* 1, . . . , m.
Figure 5
Table 1
i (Technology)
1
2
3
4
5
(Nuclear)
(Coal)
(GCC)
(GT)
(Outage)
Figure 6
Lead
Time
Class
Annualized
Capital Cost (c i )
(000$/MW)
Operating Cost (b i )
(000$/MWy)
long
long
short
short
240
160
120
60
0
40
160
260
400
6,400
6. Illustrative Example
Suppose that three outcomes are possible. The inverse
LDC for outcome r is as follows:
f r y
if
1
y if
2
2r
0
if
y 2 r,
2 r y 4 r,
(16)
y 4 r,
1299
Figure 7
Expected Cost
Figure 8
1300
Figure 9
7. Conclusion
1301
Figure 10
1302
Figure 11
Long Lead Time Technology Capacities with Higher CoalFired Operating Cost
lead time may have significant value. Thus, for example, obtaining regulatory approvals prior to the construction decision being made, may have an important
j i,
j i.
if
if
ij
Then
min V i min : P i P j , j I
b j b j1 r f r Z nr
ji
r f r Z nr
c i b i b n1 ,
the second inequality following from the fact that b j b j1 0, j
1, . . . , n, and f r (Z nr ) f r (Z jr ), j 1, . . . , n, since f r ( y) is
monotonic decreasing. In addition, since the range of f r ( y) is [0, 1],
it follows that 0 1. We thus have
min
iI
ci
,1
b n1 b i
n1
,
ci
b k b k1 r f r Z kr 0.
(17)
ki rR
ji,jI
max 0, ij
ji,jI
i .
rc i r
In a similar fashion, it may be shown that max V i i . We now
show that V i A if and only if i i . To do this, note that if V i
A, then i min V i max V i i . Conversely, from (5) and
the definitions of i and i , it follows that
P i P j
b k b k1 f r Z kr 0
r R.
(18)
ki
for
for
i
i
j i,
j i.
if
if
cj
b k b k1 r f r Z kr 0.
(19)
kj rR
b k b k1 r f r Z kr
b k b k1 r f r Z ir
j1
0 ci cj
ki rR
ji
rR
max0, max ij
ci
rR
c i b i b n1
max0, min : P i P j , j I
rR
ci
b j b j1 r f r Z jr
ji
min : P i P j
0 ci
b j b j1 r f r Z jr 0,
i I L.
j1
ci cj
rR
It may be concluded that this condition must also hold for all i I S ,
by summing (1) over all r R. We thus have, for all i I,
ki rR
c i c j b i b j
r f r Z ir ,
rR
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for
r f r Z ir ,
j i 1, . . . , n 1. 20
rR
b k b k1 r f r Z kr
b k b k1 r f r Z i1,r
i1
0 cj ci
y P g1 1
kj rR
c j c i b j b i
c 1 b 1 c m1 b m1
1
c 1 b 1 c m1 b m1 1,m1
r f r Z i1,r ,
0,
rR
and hence
P i P j
for
r f r Z i1,r ,
j 1, . . . , i 1.
(21)
rR
the third line following from (14) and the fourth line from the
definition of i .
2) Let y 1 , y 2 [ y, F X ( m )] such that y 1 y 2 . We then have
P g f Xy 1 f X y 1 P g f Xy 2 f X y 2
r f r Z ir
rR
r f r Z i1,r ,
j I .
P g f Xy 1 f X y 1 P g f Xy 1 f X y 2
(22)
rR
b g f Xy 1 f X y 1 f X y 2
rR
r f r Z ir
b m f X y 1 f X y 2 .
r f r Z i1,r i ,
rR
Similarly,
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r P h1 1
c 1 b 1 c m1 b m1
i1
cj ci
rR
kj rR
P h f ry 1 f r y 1 P h f ry 2 f r y 2 P h f ry 2 f r y 1 P h f ry 2 f r y 2
b h f ry 2 f r y 1 f r y 2
b m1 f r y 1 f r y 2 .
Hence,
y 1 y 2 P g f Xy 1 f X y 1 P g f Xy 2 f X y 2
r P h f ry 1 f r y 1 P h f ry 2 f r y 2
rR
b m f X y 1 f X y 2 b m1
r f r y 1 f r y 2
rR
b m b m1 f X y 1 f X y 2
0,
the strict inequality following from the fact that f X ( y 1 ) f X ( y 2 )
given the assumption that F X ( ) is well defined.
3) Lastly, let j I S : be chosen such that m mj . (Such a
technology must exist according to the definition of m .) Then
F X m P m mj
r P hf rF X mj f r F X mj
rR
P m mj
r P j f r F X mj
rR
P m mj P j
r f r F X mj
rR
P m mj P j f X F X mj
P m mj P j mj
0,
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(25)
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Accepted by Luk Van Wassenhove; received April 8, 1996. This paper has been with the authors 15 months for 2 revisions.
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