Long-term power generation expansion planning with short-term demand response: model, algorithms, implementation, and electricity policies

Abstract

Electric sector models are powerful tools that guide policy makers and stakeholders. Long-term power generation expansion planning models are a prominent example and determine a capacity expansion for an existing power system over a long planning horizon. With the changes in the power industry away from monopolies and regulation, the focus of these models has shifted to competing electric companies maximizing their profit in a deregulated electricity market. In recent years, consumers have started to participate in demand response programs, actively influencing electricity load and price in the power system. We introduce a model that features investment and retirement decisions over a long planning horizon of more than 20 years, as well as an hourly representation of day-ahead electricity markets in which sellers of electricity face buyers. This combination makes our model both unique and challenging to solve. Decomposition algorithms, and especially Benders decomposition, can exploit the model structure. We present a novel method that can be seen as an alternative to generalized Benders decomposition and relies on dynamic linear overestimation. We prove its finite convergence and present computational results, demonstrating its superiority over traditional approaches. In certain special cases of our model, all necessary solution values in the decomposition algorithms can be directly calculated and solving mathematical programming problems becomes entirely obsolete. This leads to highly efficient algorithms that drastically outperform their programming problem-based counterparts. Furthermore, we discuss the implementation of all tailored algorithms and the challenges from a modeling software developer's standpoint, providing an insider's look into the modeling language GAMS. Finally, we apply our model to the Texas power system and design two electricity policies motivated by the U.S. Environment Protection Agency's recently proposed CO2 emissions targets for the power sector.