Linear programming problems

Representing energy systems with

linear economic models

Kathleen Vaillancourt, GERAD, kathleen.vaillancourt@gerad.ca

Maurizio Gargiulo, E4SMA, gargiulo.maurizio@gmail.com
GianCarlo Tosato, IEA/ETSAP, gct@etsap.org

www.etsap.org

Outline
A. Linear Economic Models (LEM) and Energy Systems
B. Example of a simple problem solved with Linear Programming (LP) : primal solution
C. Example of a simple problem solved with Linear Programming (LP) : building the dual

A. Why techno-economic equilibrium models?

To provide relevant options to decision makers regarding energy systems:

Economically affordable

Technically feasible

Environmentally sustainable

To ensure that the present energy systems (in equilibrium) follow a

consistent path on the long term.

To fully embody the technical aspects (costs and prices)

To ensure the economic feasibility in the long term

To partly integrate the bottom-up and the top-down approach

To determine what technologies are competitive, marginal or
uncompetitive in each market in a system view.

technology are ranked according to dynamic economic cost-benefit

analyses and
the dynamic benefit-cost ratio provides a ranking indicator of energy
supply technologies and end-use devices on a 'level playing field.

A. Why formulated as linear programs?

Detailed: supply and demand cost curves are specified as linear

stepwise curves
Technology explicit: each step in the curves corresponds to a specific
technology
Huge dimensions and quick solutions
Compact: the same information generates two separate problems

On one side equations for physical quantities (primal problem)

On the other side, equations for prices (dual problem)

It takes advantage of the special features of linear programs and their

economic meaning.

B. Example of LP: operating coal mines

A mining company owns two mines that produces three grades of coal:
high, medium and low.
It costs 200 $/h to operate Mine A and 160 $/h to operate Mine B.
To fulfill its contractual obligations to a local power plant, the company
has to supply a minimum amount of each grade every day.
Each mine cannot operate more than 12 hour per day.
Mine A

Mine B

The problem to solve:

Cost ($/h)

$ 200.00

$ 160.00

High Grade (t/h)

12

(t/d)

Medium Grade (t/h)

(t/d)

Low Grade (t/h)

24

(t/d)

Bond Mine A

12

(h/d)

Bond Mine B

12

(h/d)

How many hours per day

should each mine be operated in
order the company to supply the
power plant at the least cost ?

B. Example of LP: operating coal mines

Min

cT x

Min 200 x1+160 x2

s.t.

Where :
c = cost vector
x = decision variable
A = coefficient matrix
b = RHS

s.t.

Ax=b
x0

6x1 + 2x2 12 (high-grade coal)

2x1 + 2x2 8 (medium-grade coal)
4x1 + 8x2 24 (low-grade coal)
0 x1 12 (max hours mine 1)
0 x2 12 (max hours mine 2)

Cost ($/h)

Mine A

Mine B

$ 200.00

$ 160.00

CONSTRAINTS

LHS

RHS

High Grade (t/h)

12

>=

12

(t/d)

Medium Grade (t/h)

>=

(t/d)

Low Grade (t/h)

28

>=

24

(t/d)

Bond Mine A

<=

12

(h/d)

Bond Mine B

<=

12

(h/d)

B. Example of LP: operating coal mines

Min

cT x

Min 200 x1+160 x2

s.t.

Where :
c = cost vector
x = decision variable
A = coefficient matrix
b = RHS

s.t.

Ax=b
x0

6x1 + 2x2 12 (high-grade coal)

2x1 + 2x2 8 (medium-grade coal)
4x1 + 8x2 24 (low-grade coal)
0 x1 12 (max hours mine 1)
0 x2 12 (max hours mine 2)

Variable (h)
Cost ($/h)

Mine A

Mine B

$ 200.00

$ 160.00

CONSTRAINTS

$ 680.00
LHS

RHS

High Grade (t/h)

12

>=

12

(t/d)

Medium Grade (t/h)

>=

(t/d)

Low Grade (t/h)

28

>=

24

(t/d)

Bond Mine A

<=

12

(h/d)

Bond Mine B

<=

12

(h/d)

D. Example of LP: building the dual

Primal

Dual

Number of variables (2)

Number of constraints (2)

Number of constraints (3)

Number of variables (3)

Obj-F to MIN

Obj-F to MAX

The matrix is the transpose of the original (different units).

High Grade

Medium Grade

Low Grade

(t/d)

12

24

(t/h)
(t/h)

6
2

2
2

4
8

<=
<=

$ 200.00
$ 160.00

($/h)
($/h)

D. Example of LP: building the dual

Max ybt
s.t.

Dx1 6*YH
Dx2 2*YH

c
y0

yAt

+2*YM

+4*YL

+2*YM

+8*YL

200
160

$/h
$/h

DOBJ 12*YH +8*YM +24*YL MAX

Duality : the (dual) OBJ is equal to the primal OBJ ($). Since the coefficients are
quantities, the dual variables must be unit values, i.e. prices (eg: $/h).
The constraints say that at the margin the unit value (price) of each mine in terms of
the unit value of the content (types of coal) cannot exceed the price (price formation
equations).
High Grade

Medium Grade

Low Grade

($/t)

10

70

(t/d)

12

24

CONSTRAINTS

$ 680.00

LHS

RHS

(t/h)

$ 200.00

<=

$ 200.00 ($/h)

(t/h)

$ 160.00

<=

$ 160.00 ($/h)

D. Example of LP: the optimal price

If we multiply the primal problem at optimum by the values of the dual solution (shadow prices)
or
If we multiply the dual problem at optimum by the optimal values of the primal solution (optimal
decision variables)
We obtain the matrix of optimal flows of value, i.e.:
Mine A Mine B
(h/d)

(h/d)

Dual

Mine A

Mine B

Mine A

Mine B

($/h)

($/h)

($/d)

($/d)

$ 200.00 $ 160.00

$ 200.00 $ 480.00

($/t)

Dual

Mine A Mine B

$ 680.00

(t/d)

(t/d)

12

36

48

Dual

10

(t/h)

(t/d) 12

$ 60.00 $ 60.00

$ 120.00

12

70

(t/h)

(t/d)

$ 140.00 $ 420.00

$ 560.00

(t/h)

(t/d) 24

24

28

Both

$ 680.00

48

By row: the total value of consumption of each commodity (coal types) by supplier (mines).
By column: the total value of supply of each producer (mines) by commodity (coal types).
In other words, it represent the matrix of optimal transactions.

 References

Von Neumann J.: A model of General Economic Equilibrium, K. Menger

Editor, translated from German by G. Morgenstern, 1938
Dorfman R., Samuelson P. A., Solow R. M.: Linear Programming and
Economic Models, McGraw-Hill Book Company, New York 1958; Dover
Publications, New York, 1987

Gale D.: The Theory of Linear Economic Models, The University of

Chicago Press, Chicago and London, 1960, 1989
Chang A. C.: Fundamental Methods of Mathematical Economics, McGrawHill Book Company, New York 1974