424 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 27, NO.

1, FEBRUARY 2012
Strategic Generation Investment Under
Uncertainty Via Benders Decomposition
S. Jalal Kazempour, Student Member, IEEE, and Antonio J. Conejo, Fellow, IEEE
AbstractWe address the generation investment problem faced
by a strategic power producer and consider a detailed description
of the uncertain parameters involved, namely, rival producer
investment and market offering, and demand growth. To identify
optimal investment decisions, we consider a target year and
propose a bilevel model whose upper-level problem determines
investment and offering decisions to maximize expected prot,
and whose many lower-level problems represent market clearing
conditions per demand block and scenario. Since the producer
total expected prot is sufciently convex with respect to invest-
ment decisions, a Benders decomposition approach is proposed
that results in a tractable formulation even if hundred of scenarios
are used to describe uncertain parameters. Extensive numerical
simulations based on realistic case studies show the good perfor-
mance of the proposed decomposition approach.
Index TermsBenders decomposition, generation investment,
mathematical programs with equilibrium constraints (MPEC),
strategic producer, uncertainty.
NOTATION
The main notation needed in this paper is provided below.
Other symbols are dened as required. Some of the constants
and variables below incorporate subscript if referring to sce-
nario and superscript if referring to Benders iteration .
A. Indices:
Index for demand blocks.
Indices for the new/existing generating units of
the strategic producer.
Index for other generating units owned by rival
producers.
Index for demands.
Index for available investment capacities.
Indices for buses.
B. Constants:
Weighting factor of demand block .
Annual investment cost of new unit .
Option of investment capacity for new unit .
Manuscript received January 18, 2011; revised April 09, 2011; accepted June
03, 2011. Date of publication July 05, 2011; date of current version January 20,
2012. The work of S. J. Kazempour and A. J. Conejo was supported in part by
the Junta de Comunidades de Castilla-La Mancha through project PCI-08-0102,
and by the Ministry of Science and Technology of Spain through CICYT Project
DPI2009-09573. Paper no. TPWRS-00033-2011.
The authors are with Universidad de Castilla-La Mancha, Ciudad Real, Spain
(e-mail: SeyyedJalal.Kazempour@alu.uclm.es; Antonio.Conejo@uclm.es).
Digital Object Identier 10.1109/TPWRS.2011.2159251
Capacity of existing unit of the strategic
producer.
Capacity of unit of rival producers.
Maximum load of demand in block .
Marginal cost of new/existing unit of the
strategic producer.
Price offer of unit of rival producers in demand
block .
Price bid of demand in block .
Susceptance of line .
Transmission capacity of line .
C. Variables:
Capacity of new unit of the strategic producer.
Price offer by new/existing unit of the
strategic producer in demand block .
Power produced by new/existing unit of the
strategic producer in demand block .
Power produced by unit of rival producers in
demand block .
Power consumed by demand in block .
Voltage angle of bus in demand block .
I. INTRODUCTION
A. Aim
A
RELEVANT problem faced by any power producer oper-
ating within a market environment is to decide its invest-
ment in generation capacity. Adequately solving this problem
requires describing in detail the uncertainty involved and cor-
rectly modeling market functioning.
Thus, we formulate the generation investment problem faced
by a strategic electricity producer as a bilevel model, whose
upper-problem represents investment and offering decisions by
the producer that pursues maximum expected prot, and whose
lower-level problems represent market clearing conditions in
many scenarios.
Uncertainty pertaining to 1) rival producer investment, 2)
rival producer offering, and 3) future demand is described in
detail via a large number of plausible scenarios. For tractability
purposes, scenario reduction techniques are used to trim down
0885-8950/$26.00 2011 IEEE
KAZEMPOUR AND CONEJO: STRATEGIC GENERATION INVESTMENT UNDER UNCERTAINTY VIA BENDERS DECOMPOSITION 425
the number of scenarios while keeping as intact as possible the
description of the uncertain phenomena under consideration.
The approach used is static in the sense that a single target
year is considered for investment decisions. Such static ap-
proach resolves the tradeoff between modeling accuracy and
computational tractability. The demand variation throughout
the target year is modeled using a stepwise load duration curve
characterized by a number of demand blocks.
The bilevel model can be transformed into two alternative
mathematical programs with equilibrium constraints (MPECs)
which present structures exploitable by Benders decomposi-
tion. One MPEC is mixed-integer linear and the other one is
nonlinear. Moreover, if the strategic behavior of the producer is
modeled via supply functions and a sufciently large number of
scenarios is considered, exhaustive computational analysis indi-
cates that the expected prot of the strategic producer is convex
enough with respect to investment decisions; thus, a successful
implementation of Benders approach is possible.
If investment decisions are xed to given values, each of the
two MPECs representing the considered bilevel model decom-
poses by scenario. The mixed-integer linear MPEC of each sce-
nario (denoted auxiliary problem) is solved to identify its op-
timal solution. Such optimal solution allows converting the non-
linear MPEC into a continuous linear programming problem
(Benders subproblem) that provides the sensitivities of the ex-
pected prot with respect to investment decision. In turn, these
sensitivities are used to build Benders cut needed in Benders
master problem.
B. Literature Review and Contributions
Reference [1] proposes three different models for generation
investment considering 1) perfect competition, 2) an open-loop
Cournot model, and 3) a closed-loop Cournot model. This third
model leads to an MPEC, where investment and production de-
cisions are considered in separated stages. Reference [2] inves-
tigates the impact of forward contracts on generation investment
decisions and market power mitigation. Generation investment
decisions under both centralized and decentralized frameworks
are investigated in [3] using a stochastic dynamic model. In
[4], a stochastic dynamic model is also used to analyze gener-
ation investment decisions under different market designs: en-
ergy only, capacity payment, capacity obligation, and capacity
subscription. In [5], a two-tier noncooperative game for genera-
tion investment is proposed, where the investment and supply
energy games are examined in the rst and the second tiers,
respectively. The value of information pertaining to rival pro-
ducers and demand for generation investment is evaluated in [6].
In [7], a bilevel model for the strategic generation investment is
proposed and recast as a nondecomposed MPEC. Since all in-
volved scenarios need to be considered simultaneously, a large
number of scenarios may lead to high computational burden and
intractability.
Benders decomposition is attractive if an optimization
problem includes complicating variables, that is, if xing those
variables to given values results in a decomposed problem that
is easier to solve than the original one [8].
The contributions of this paper are twofold:
1) to show through numerical simulation that the expected
prot of a strategic producer is sufciently convex with
respect to investment decisions, provided that the strategic
behavior of the producer is modeled and that a large enough
number of scenarios is considered;
2) to develop a Benders solution approach for the strategic
investment problemthat is effective even if hundred of sce-
narios are considered to describe uncertain data.
C. Paper Organization
The reminder of this paper is organized as follows. Section II
describes the structure of the proposed Benders algorithm and
claries convexity issues. Section III presents the formulation
of the bilevel model, the corresponding decomposed model,
and Benders algorithm. Section IV gives some results and pro-
vides some discussions for two realistic case studies. Finally,
Section V provides some relevant conclusions.
II. BENDERS APPROACH
A. Benders Algorithm
The proposed Benders algorithm works as follows:
1) Given xed investment decisions (complicating variables),
the resulting decomposed subproblems are solved and their
solutions provide a) offering and operating decisions for
the producer and b) sensitivities of the producer expected
prot with respect to the investment decisions.
2) The sensitivities obtained in step 1 above allowformulating
a so-called Benders master problem whose solution pro-
vides updated investment decisions.
3) Steps 12 above are repeated until no expected prot im-
provement is achieved.
Fig. 1 further claries the proposed Benders algorithm. Fixing
the investment variables (Box B) renders a decomposed bilevel
model per scenario (Box C), which can be recast into two dif-
ferent but equivalent MPECs: one is mixed-integer linear (aux-
iliary problem, Box D) and the other one (subproblem, Box
E) is continuous and generally nonlinear. The subproblems are
made linear using the optimal values of selected variables ob-
tained from the auxiliary problems. Sensitivities obtained from
the subproblems allow formulating the master problem (Box
F) to update the investment variables. The algorithm continues
until no expected prot improvement is achieved.
B. Convexity Issues
If the minus expected prot of the producer as a function of
investment decisions has a convex envelope, a successful im-
plementation of Benders decomposition is possible. Notwith-
standing that bilevel models do not generally meet that require-
ment, extensive experimental analysis shows that the considered
MPEC does.
Two factors inuence convexity:
1) the offering strategy of the producer;
2) the number of scenarios involved.
Figs. 25 clarify the convexity issues. Figs. 2 and 3 pertain to
the case of a single scenario: if the producer offers strategically,
its expected prot is rather convex with respect to investment
decisions (Fig. 3), while with nonstrategic offering (offering at
426 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 27, NO. 1, FEBRUARY 2012
Fig. 1. Flowchart of the proposed Benders algorithm.
marginal cost), it is not (Fig. 2). The reason for this behavior
is that the availability of newly built units may lead to the shut
down of expensive existing units in a particular demand block.
Once one of these units is shut down, if the considered producer
adapts its offers to the new situation of demand-bid and pro-
duction-offer blocks (i.e., strategic offering), the expected prot
prole becomes smooth. On the contrary, the expected prot
prole presents spikes with nonstrategic offering.
Additionally, Figs. 4 and 5 show that an increasing number
of scenarios results in a smoother and rather convex expected
prot function for both strategic and nonstrategic offerings. The
theoretical foundation of this behavior is analyzed in [9].
C. Scenario Reduction
It is important to note that scenario reduction techniques (e.g.,
see [10] and [11]) are convenient to trim down the number of
considered scenarios (e.g., from 2000 to 20) while maintaining
as intact as possible the uncertainty description embodied within
the original scenario set.
Fig. 2. Minus producer prot as a function of capacity investment with non-
strategic offering and one scenario.
Fig. 3. Minus producer prot as a function of capacity investment with strategic
offering and one scenario.
Fig. 4. Minus producer expected prot as a function of capacity investment
with nonstrategic offering and many scenarios.
Fig. 5. Minus producer expected prot as a function of capacity investment
with strategic offering and many scenarios.
III. FORMULATION AND BENDERS ALGORITHM
A. Bilevel Model
The bilevel model for strategic generation investment is
constituted by an upper-level problem and a set of lower-level
problems (Box A of Fig. 1). The target of each lower-level
KAZEMPOUR AND CONEJO: STRATEGIC GENERATION INVESTMENT UNDER UNCERTAINTY VIA BENDERS DECOMPOSITION 427
problem, one per demand block and scenario, is to represent
the market clearing conditions obtained by maximizing the
social welfare (or minimizing the minus social welfare). The
upper-level problem seeks to maximize the expected prot
of the strategic producer (or to minimize the minus expected
prot). This bilevel model is stated as follows:
(1a)
subject to:
(1b)
(2a)
subject to:
(2b)
(2c)
(2d)
(2e)
(2f)
(2g)
(2h)
(2i)
The optimization variables of each lower-level problem (2)
are those in set
. The upper-level problem (1)
includes the following optimization variables:
.
The objective function of upper-level problem(1a) to be min-
imized is the minus expected prot of the strategic producer (in-
vestment cost minus operations revenues). Note that the prob-
ability (weight) of scenario is . The locational marginal
price (LMP) is the dual variable of the balance constraint
pertaining to demand block , bus , and scenario . Note that
/ states that unit / is located at bus . The
upper-level problem is subject to constraints (1b) and to lower-
level problems (2). Constraints (1b) allowthe strategic producer
to select new generation units for each candidate bus among
available technologies (e.g., base and peak). Note that one op-
tion for each new unit is no investment (e.g., feasible invest-
ments are 0, 250, 500, 750, or 1000 MW).
The objective function of each lower-level problem (2a) to be
minimized is the minus social welfare, while constraints (2b)
enforce energy balance at each bus . Note that indi-
cates that bus is connected to bus . Constraints (2c)(2f) en-
force lower and upper production/consumption bounds for new
and existing units of the strategic producer, rival units, and de-
mands. The network constraints including transmission capacity
of lines, voltage angle bounds, and reference bus identication
are modeled by (2g)(2i). Dual variables are indicated at the
corresponding equations following a colon.
For each demand block and scenario, the market operator
clears the market for given investment and offering decisions,
so , and are parameters in the lower-level prob-
lems, while they are variables in the upper-level one. Thus, the
lower-level problems are continuous and linear.
The three uncertainties taken into account pertain to: 1) rival
producer investment, 2) rival producer offering, and 3) future
demand. These uncertainties are modeled through parameters
, and , respectively, indexed by scenario .
For notational clarity, additional subscripts to describe pro-
duction-offer and demand-bid blocks have not been included.
However, production-offer blocks are considered in all the case
studies.
B. Complicating Variables
Solving model (1)(2) requires considering all involved sce-
narios simultaneously. Therefore, a high number of scenarios
may result in high computational burden and intractability. If
investment variables are considered to be complicating vari-
ables and the expected prot is sufciently convex with respect
to these investment variables, model (1)(2) can be solved using
Benders decomposition. The reason for selecting as compli-
cating variables is that xing these variables renders a decom-
posed model per scenario (Box B of Fig. 1).
C. Decomposed Models
The decomposed model in scenario is a bilevel model
whose upper-level problem seeks to minimize the minus op-
erations revenues of (1a) for scenario (Box C of Fig. 1).
This upper-level problem is subject to xing the complicating
variables to given values, and to the lower-level problems (2)
in scenario , one per demand block.
Each decomposed model can be recast to an MPEC by re-
placing the lower-level problems by a set of constraints which
are attained using one of the following two approaches:
1) Karush-Kuhn-Tucker (KKT) conditions;
2) primal and dual constraints and the strong duality theorem
equality.
Each MPEC provided by the rst approach (MPEC1) includes
complementarity constraints. Although the complementarity
constraints can be linearized using binary variables, and
mixed-integer MPEC1 solved, its solution renders inaccu-
rate sensitivities to build Benders cuts. On the other hand,
428 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 27, NO. 1, FEBRUARY 2012
each MPEC obtained by the second approach (MPEC2) is
continuous and nonlinear and its solution provides accurate
sensitivities. The nonlinearity is due to the nonlinear terms in
the strong duality theorem equality. These nonlinearities may
lead to a nonrobust behavior.
Thus, we solve MPEC1 per scenario to obtain the optimal
values of the variables involved in the nonlinear terms of the
corresponding MPEC2. These variables in scenario are:
, and . Substituting the optimal values of such vari-
ables in MPEC2 for scenario renders a version of MPEC2
continuous and linear, whose solution provides accurate sensi-
tivities. Each MPEC1 is thus referred to as auxiliary problem
(Box D of Fig. 1), while each MPEC2 is referred to as sub-
problem (Box E of Fig. 1).
D. Auxiliary Problem
The formulation of the auxiliary problem for scenario is
stated below. Note that all variables pertain to Benders iteration
, but for notational clarity, such superscript is not included:
(3a)
subject to:
(3b)
(3c)
(3d)
(3e)
(3f)
(3g)
(3h)
(3i)
(3j)
(3k)
(3l)
(3m)
(3n)
(3o)
(3p)
(3q)
(3r)
(3s)
(3t)
The investment (complicating) variables are xed in (3b). The
set of equality constraints (3c)(3h) and complementarity con-
straints (3i)(3t) is equivalent to the lower-level problem (2).
Each MPEC (3) is transformed into a mixed-integer linear
programming problem by linearizing the complementarity con-
straints (3i)(3t) and the nonlinear termin the objective function
(3a).
The complementarity constraints (3i)(3t) are linearized by
replacing with (4). Note that should be a
large enough positive constant [12]:
(4)
In addition, the linear equivalent of the nonlinear term in (3a)
is obtained using the strong duality theorem and some of the
KKT equalities, as stated in [7]:
(5a)
where
(5b)
The optimization variables of auxiliary problem (3) are those
in set
plus the binary
variables generated in the linearization procedure stated in (4).
The solution of auxiliary problem per scenario gives the
optimal values of the following variables:
(6a)
(6b)
(6c)
KAZEMPOUR AND CONEJO: STRATEGIC GENERATION INVESTMENT UNDER UNCERTAINTY VIA BENDERS DECOMPOSITION 429
E. Subproblem
The subproblemfor scenario is formulated below. Note that
all variables pertain to Benders iteration , but for notational
clarity, such superscript is not included:
(7a)
subject to:
(7b)
(7c)
(7d)
(7e)
(7f)
(7g)
(7h)
(7i)
(7j)
(7k)
(7l)
(7m)
The optimization variables of subproblem (7) are those in set
.
Subproblem (7) is constituted by the objective function (7a),
constraints to x the complicating variables to given values (7b),
primal constraints (7c), dual constraints (7d)(7l), and strong
duality theorem equalities (7m). Dual variables of (7b) are
sensitivities. The nonlinear term in the objective function (7a)
is replaced by its linear equivalent provided in (5). Therefore,
subproblem (7) becomes continuous and linear.
The results of subproblems (7) for all scenarios provide
and , which allow computing the value of to be used
in the convergence check and the values of and to be
used in Bender master problem, i.e.,
(8a)
(8b)
(8c)
F. Master Problem
The formulation of Benders master problem(Box Fof Fig. 1)
at iteration is as follows:
(9a)
Fig. 6. Proposed Benders algorithm.
subject to:
(9b)
(9c)
(9d)
The optimization variables of master problem (9) at iteration
are those in set . Note that
this problem is mixed-integer and linear.
The objective function (9a) corresponds to (1a), where
represents minus operations revenues. Constraint (9c) imposes a
lower bound on to accelerate convergence. Constraints (9d)
are Benders cuts. Note that at every iteration, a new constraint
is added to (9d). Each solution of the master problem updates
the values of the complicating variables.
G. Algorithm
A description of the proposed Benders algorithm to solve
the strategic generation investment problem under uncertainty
is shown in Fig. 6. Input data for the proposed Benders algo-
rithm include a tolerance , initial guesses of the complicating
variables , and scenario data. The initialization step includes
setting , and forcing the investment (compli-
cating) variables to be equal to the initial guesses. Step 1 selects
the rst scenario. Step 2 solves the auxiliary problem(3) per sce-
nario . Then, the optimal values of variables , and
are considered to be xed to solve subproblem (7). Step
3 solves the subproblem (7) per scenario . Step 4 repeats the
steps 23 for all involved scenarios. Step 5 checks convergence
by comparing the values of obtained by (8a) and . If
their difference is smaller than the tolerance , the solution of
iteration is optimal with a level of accuracy . Otherwise, the
values of and are computed by (8b)(8c) and the next
iteration is started. Step 6 solves the master problem (9) to up-
date the values of and of . The algorithm continues
in step 1.
430 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 27, NO. 1, FEBRUARY 2012
TABLE I
COMPARISON OF INVESTMENT RESULTS FOR THE CASE STUDY PRESENTED IN [7]
IV. CASE STUDIES
The objectives of this section are twofold:
1) to illustrate the interest of the proposed Benders algorithm
to reduce the computational burden while obtaining op-
timal results;
2) to highlight the ability of the proposed algorithm to solve
the strategic generation investment problem in large sys-
tems and considering many scenarios.
The rst objective is addressed in Section IV-A, where the
proposed Benders algorithm and a nondecomposed MPEC
approach (considering all involved scenarios simultaneously)
are applied to an example. The results of those methods and
the computational time required are compared. To attain the
second objective, Sections IV-B and IV-C consider two large
case studies, both involving a large number of scenarios.
A. Case Study of [7]
Table I provides a comparison between the results obtained
using a nondecomposed MPEC approach in [7] and the results
achieved using the proposed Benders algorithm. Both of these
methods are applied on a case study presented in [7]. The left-
side results of Table I are those reported in [7, Table XI], while
the right-hand results pertain to the proposed Benders algo-
rithm. The second row identies the three considered cases: 1, 4
and 12 scenarios. Note that in the case of 12 scenarios, the net-
work is reduced to 9 buses due to the computational burden to
solve the corresponding nondecomposed MPEC. Rows 35 per-
tain to investment results of base and peak technologies and total
investment. The next two rows give the expected prot of the
strategic producer and the investment cost, respectively. Row
8 indicates the optimality gap enforced in each case. Note that
lower gaps may lead to higher accuracy but at the cost of higher
computational time. The comparatively analysis of the results
shows that both methods provide similar results, while compu-
tational burden is signicantly decreased in the case of the pro-
posed Benders algorithm.
B. One-Area Reliability Test System
This section presents results from a case study based on the
IEEE one-area Reliability Test System (RTS) [13]. The number
of demand blocks and the corresponding weighting factors, de-
mand-bid, and generation-offer blocks are those provided in [7].
The available investment options are given in Table II. Note that
each investment option includes two production blocks. For the
sake of simplicity, the size of each blocks is considered equal
TABLE II
INVESTMENT OPTIONS
TABLE III
INVESTMENT OPTIONS FOR RIVAL PRODUCERS: ONE-AREA RTS CASE
to half of the installed capacity. Buses 9 and 14 are the two
candidate locations to build new units. To analyze the inuence
of the network in the investment results, the capacities of the
north-south tie-lines 1114, 1223, 1323, and 1524 are lim-
ited to 200 MW. Note that bus 9 is in the southern area where
demand prevails, while bus 14 is in the northern area where gen-
eration does.
A stochastic case involving 240 scenarios is analyzed. The
uncertainties of rival producer investment (16 alternatives),
rival producer offering (5 alternatives), and demand (3 alterna-
tives) render 240 scenarios. The probability of each scenario is
obtained by multiplying the probabilities of the corresponding
alternatives. Regarding rival producer investment uncertainty,
Table III gives the investment options for rival producers.
Considering four rival producer investment options results in
16 alternatives, one investing in all options (alternative A), 4
investing in three of them (alternatives B), 6 investing in two of
them (alternatives C), 4 investing in one of them (alternatives
D), and one investing in none of them (alternative E). The prob-
abilities of alternative A, each alternative B, each alternative
C, each alternative D, and alternative E are 0.1, 0.025, 0.033,
0.075, and 0.3, respectively.
Rival producer offering uncertainty is characterized by mul-
tiplying the price offer (marginal cost) of rival units by a factor.
Five alternatives for rival producer offering are examined using
factors 1.20, 1.15, 1.10, 1.05, and 1.00 with probabilities 0.10,
0.20, 0.20, 0.10, and 0.40, respectively. Finally, three alter-
natives for demand uncertainty are modeled in a similar way,
using three different factors to multiply all maximum loads,
KAZEMPOUR AND CONEJO: STRATEGIC GENERATION INVESTMENT UNDER UNCERTAINTY VIA BENDERS DECOMPOSITION 431
Fig. 7. Evolution of the expected prot, the prot standard deviation, and the
CPU time with the number of scenarios.
TABLE IV
INVESTMENT RESULTS: ONE-AREA RTS CASE
1.10, 1.00, and 0.90, with probabilities 0.25, 0.50, and 0.25,
respectively.
For this stochastic case, Fig. 7 shows the evolution of the ex-
pected prot, the prot standard deviation, and the CPU time
with the number of scenarios. Scenarios are selected using sce-
nario reduction techniques [10], [11]. The working of this tech-
nique is approximately as follows: rst the model is solved for
each individual scenario and then scenarios with similar ex-
pected prot are merged and their probabilities added. Both the
expected prot and the prot standard deviation remain stable
for a number of scenarios higher than 40, but to provide a suf-
cient margin, 60 scenarios are considered.
Table IV gives the investment results for a case involving 60
scenarios (considering scenario reduction) and 240 scenarios
(not considering scenario reduction). This table provides the ex-
pected prot of the strategic producer (row 2), the investment
results (rows 34), the convergence error (row 5), the number
of iterations needed to convergence (row 6), and the optimality
gap enforced (row 7). Note that identical investment results for
both cases conrms the validity of the scenario reduction tech-
nique used. Anewunit is located at bus 9 in southern area where
demand prevails. Since all involved scenarios are not simultane-
ously considered in the proposed Benders algorithm, this model
is always tractable even with a higher number of scenarios. Nev-
ertheless, scenario reduction techniques can reduce the compu-
tational burden signicantly.
Fig. 8 illustrates the evolution of Benders algorithm in the
case involving 60 scenarios. This algorithm converges in itera-
tion 10, where the difference between (upper curve) and
(lower curve) is smaller than the tolerance .
Fig. 8. Evolution of Benders algorithm: one-area RTS case involving 60 sce-
narios.
TABLE V
TYPE AND LOCATION OF EXISTING GENERATION
UNITS IN AREA B: TWO-AREA RTS CASE
TABLE VI
INVESTMENT RESULTS: TWO-AREA RTS CASE
C. Two-Area Reliability Test System
Strategic investment results for a larger case study, the IEEE
two-area RTS test system[13], are presented in this section. This
case study includes two integrated areas (areas A and B), being
each of them similar to the system considered in the case study
of the previous section. The capacities of north-south tie-lines
in both areas as well as interconnected tie-lines between areas
A and B are xed to 200 MW. The number of demand blocks
and the corresponding weighting factors, the bus candidates to
build new units, the demand-bid blocks in both areas, and the
generation-cost blocks in area A are those provided in the pre-
vious section. The unit type and location of existing generation
units in area B are given in Table V, which has generation-cost
blocks consistent with those in [7, Table II].
A stochastic case study involving 240 scenarios is analyzed.
The scenarios and corresponding probabilities are those pro-
vided in the previous section, except for the investment options
of rival producers, which are coal 350 MW at bus A9, coal 76
MW at bus A14, gas 100 MW at bus B9, and coal 76 MW at bus
B14. Their generation-cost blocks are provided in [7, Table II].
Based on a similar scenario analysis to the one carried out in
the previous section (Fig. 7), the number of scenarios selected
is 20. Table VI gives the strategic investment results. Note that
432 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 27, NO. 1, FEBRUARY 2012
the majority of the new units are located in the southern areas
where demand prevails.
D. Computational Issues
Each auxiliary problem (3), each subproblem (7), and the
master problem (9) in each iteration are solved using CPLEX
12.0.1 [14] under GAMS [15] on a Sun Fire X4600M2 with
8 Quad-Core processors clocking at 2.9 GHz and 256 GB of
RAM.
The computational times required for solving the proposed
algorithm are provided in Tables I, IV, and VI and the last plot
of Fig. 7. As expected, the required time increases with the size
of the problem and with the number of scenarios.
Note that the appropriate selection of parameter in the
master problem and a suitable initialization accelerate the con-
vergence.
V. CONCLUSION
This paper considers a generation investment model for a
strategic electricity producer in which uncertainty is precisely
modeled via a large number of scenarios. The resulting problem
is a stochastic MPECthat is solved via Benders decomposition.
The conclusions below are in order:
1) If the considered number of scenarios is large enough, the
expected prot of the strategic producer as a function of
its investment decisions has a sufciently convex envelope,
which allows using Benders decomposition.
2) The efcient computation of the sensitivities of the ex-
pected prot of the producer with respect to its investment
decisions (needed for the Benders decomposition algo-
rithm) requires sequentially solving two MPECs per sce-
nario, one mixed-integer linear and one linear.
3) The proposed Benders algorithm attaints the optimal so-
lution in a few iterations and behaves in a robust manner.
4) Two large-scale case studies illustrate the usefulness of the
proposed approach to solve realistic problems involving
many uncertainty scenarios.
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S. Jalal Kazempour (S08) received the B.Sc. degree in electrical engineering
from University of Tabriz, Tabriz, Iran, in 2006 and the M.Sc. degree from Tar-
biat Modares University, Tehran, Iran, in 2009. He is currently pursuing the
Ph.D. degree at the University of Castilla-La Mancha, Ciudad Real, Spain.
His research interests include electricity markets, equilibrium, and investment
problems.
Antonio J. Conejo (F04) received the M.S. degree from the Massachusetts
Institute of Technology, Cambridge, in 1987, and the Ph.D. degree from the
Royal Institute of Technology, Stockholm, Sweden, in 1990.
He is currently a full Professor at the University of Castilla-La Mancha,
Ciudad Real, Spain. His research interests include control, operations, planning
and economics of electric energy systems, as well as statistics and optimization
theory and its applications.