Generation Capacity Expansion Planning under

Demand Uncertainty Using Stochastic

Mixed-Integer Programming
William Gandulfo, Esteban Gil, and Ignacio Aravena
Universidad Tecnica Federico Santa Mara
Valparaso, Chile
AbstractGeneration Capacity Expansion Planning (GCEP)
decides about generation capacity investments to adequately
supply the future loads, while minimizing investment and operation costs satisfying a set of technical and security constraints.
This paper presents a Stochastic Mixed-Integer Programming
formulation (SMIP) for suggesting future generation investments
considering demand uncertainty. The method was applied to
the Chilean Northern Interconnected System (SING) with a
planning horizon of 14 years considering uncertainty on the
possible future connection of large industrial and mining loads.
The computational challenges posed by GCEP under uncertainty
required compromising between the detail of the stochastic
demand representation and the detail of the transmission system.
Thus, scenario-reduction was applied to keep the problem of a
manageable size without losing too much transmission detail. Our
results for the SING showed that use of SMIP can bring expected
savings of about 1.1% on the total investment plus expected
operational cost with respect to optimization using an average
demand scenario. Furthermore, the stochastic plan showed less
variability across scenarios and proved to be more resilient to
changes in the modeling assumptions than the other plans.
Index Termsgeneration planning, capacity expansion planning, stochastic optimization, stochastic mixed-integer programming.

I. I NTRODUCTION

ENERATION Capacity Expansion Planning (GCEP)

refers to deciding future investments in generation capacity to maintain an adequate margin between supply and
demand, considering possible future changes in demand and
the transmission network. Thus, GCEP is concerned with deciding the type, size, location, and timing of future generation
plants.
Uncertainty is always present in any modeling effort, especially when the decision horizon is so extended as in
GCEP. Demand growth variability, fuel prices volatility, primary energy availability, and technology change are some of
the aspects introducing uncertainty in GCEP. Traditionally,
the problem is solved deterministically (usually employing a
single demand scenario) and then uncertainty is addressed by
running sensitivity studies to analyze the impacts of variations
in the modeling assumptions and to evaluate the robustness and
resilience of the solution. The deterministic GCEP problem
(assuming perfect foresight) has been widely studied and
several methods to solve it have been proposed, either by using
traditional linear programming (LP), mixed integer linear

978-1-4799-6415-4/14/$31.00 2014 IEEE

programming (MILP), or heuristic/meta-heuristic techniques

[1][3]. Of particular interest lately has been the incorporation
of reliability constraints [4], renewable integration [5], [6],
emissions control [7], and decentralized decision making with
incomplete information [8][10].
Increase in computational power has lately allowed to
extend deterministic GCEP formulations to use stochastic
programming paradigms capable of providing from the start
capacity expansion plans that are more robust the uncertainty
of the input parameters [11]. This paper proposes the use
of Stochastic Mixed-Integer Programming (SMIP) to solve
the stochastic GCEP problem under demand uncertainty. The
proposed method is illustrated for the Chilean Northern Interconnected System (Sistema Interconectado del Norte Grande,
SING). As the SING supplies mostly industrial and mining
loads, planners suffer demand uncertainty about what new
large industrial and mining projects might materialize (or
not), creating great difculty to suggest investors indicative
generation expansion plans. The use of stochastic SMIP allows
to suggest indicative generation capacity expansion plans that
are more robust to changes in the demand assumptions by
optimizing for a greater set of demand scenarios.
This paper is structured as follows: Section II formulates
the GCEP problem using SMIP; Section III describes the test
system and discusses the generation of the demand scenarios;
Section IV presents and discusses the simulation results and
Section V presents the main conclusions of this work.
II. S TOCHASTIC MIXED - INTEGER PROGRAMMING APPLIED
TO THE GCEP PROBLEM
A. Stochastic programming
Stochastic optimization is understood as a set of techniques
for modeling mathematical optimization problems involving
uncertainty. Particularly, stochastic programming takes the
deterministic formulation of a mathematical optimization problem and expands it to multiple realizations of the stochastic
parameter, where each realization corresponds to a scenario
s from the set of scenarios S. Thus, stochastic programming
requires representing the probability distribution of the random
parameters by a nite set of discrete scenarios [12]. In this
sense, stochastic programming is capable of nding a unique
solution that is feasible for all scenarios and that is optimal
in some sense, such as minimizing/maximizing the expected

value of a certain function. In 2-stage stochastic programming,

decision variables are separated in 2 stages, where rst stage
decisions are the same across all scenarios while second stage
decisions can be different. Stochastic programming is not the
same than solving S different deterministic scenarios, as in
stochastic programming the rst stage variables are forced to
be the same for the full set of scenarios by a set of nonanticipativity constraints. The same concept can be generalized
for more than 2-stages.
For modeling GCEP under demand uncertainty we are using
2-stage Stochastic Mixed-Integer Programming (SMIP) where
the rst stage decisions are the generation investments (integer
variables) while the second stage decisions are operational
decisions such as generation dispatch and power ows in the
lines. Therefore, rst-stage decisions are made based on partial
information from the second stage (probability distribution of
the stochastic parameter) and, after realization of the stochastic
parameters, the second-stage decisions (or recourse decisions)
take actions to optimize the objective function given the
rst-stage decisions. Although application of SMIP is being
intensely researched for other power system applications (such
as stochastic unit commitment under demand and/or wind
uncertainty [13][15]), except for [11] it has still not been
widely used for capacity expansion planning.
A generic mathematical formulation of SMIP to the problem
is given in (1). The problem consists of minimizing the
expected value of the objective function over the discrete
set of scenarios S. Each scenario s has a different weight
or probability s , given by the discrete representation of the
stochastic input parameter .
Minimize:


sS

s F ( s , {xs , y s , z s })

x1
y
A( )
0

0 1 b( 1 )
1
z1
A( 2 )
0
. b( 2 )
0

Subject to: .
..
.. ..
..
= ..
..
.

.
.
.
x
0
0
A( S ) S
b( S )
yS
zS
xs 0, y s 0, z s 0
s S
(1)

xs , y s , and z s are, respectively, the rst-stage decisions,

second-stage decisions, and slack variables in scenario s.
Depending on the nature of the uncertainty, the objective
function F ( s , {xs , y s , z s }), the matrix of coefcients A( s ),
and/or the right-hand side vectors b( s ) can depend on .
However, in the particular case of demand uncertainty, only
b( s ) is dependent on the stochastic input parameter s .
Next, it is necessary to force the rst-stage decisions to be
the same across scenarios. This is achieved by dening nonanticipativity constraints forcing all vectors xs to be the same
across the different scenarios.
B. Objective function
In the deterministic formulation the objective function seeks
to minimize the total investment and operational costs. The

SMIP formulation extends the deterministic formulation and

the SMIP objective function (2) is the expected value of the
deterministic objective function. As rst-stage decision variables (investment decisions) are the same across scenarios, the
problem is equivalent to minimizing investment plus expected
operational costs.
Minimize:

 
s
sS

BuildCostg,y GenBuildg,y,s

yY gGB

  

V oLLy U SEn,t,y,s

(2)

yY tT nN

  

GenCostg,t,y GenLoadg,t,y,s

yY tT gG

  

P enaltyc,t,y Slackc,t,y

yY tT cC

where G and GB are, respectively, the set of all generators

and the set of generators with building decisions; S is the
set of electric demand scenarios; N is the set of buses; T
and Y are the set of time blocks and the set of years in
the planning horizon, respectively; C is the set of constraints.
GenBuildg,y,s and BuildCostg,y are generator g investment
decisions and its associated costs; V oLLy is the Value of
Lost Load; U SEn,t,y,s is the unserved energy in bus n;
GenLoadg,t,y,s and GenCostg,t,y,s are the generation and the
operating cost of generator g; Slackc,t,y and P enaltyc,t,y are
the slack and its associated penalty for violating constraint c.
C. Constraints
1) Energy balance at each bus: Incumbent and new generation capacity must be able to supply future demand and
transmission losses i N, t T, y Y, s S.


GenLoadg,t,y,s + U SEi,t,y,s

gGi

F lowlij ,t,y,s + 0.5

jj

Losslij ,t,y,s

(3)

jj

= Demandi,t,y,s

where j and Gi are the set of buses adjacent to bus i

and the set of generators connected to bus i; F lowlij ,t,y,s and
Losslij ,t,y,s are the ow and losses in transmission line from
i to j; Demandi,t,y,s is the demand in bus i.
2) Transmission constraints: Relationships between voltage angles and ows and transmission limits are dened
lij L, t T, y Y, s S by equations (4) to (6).
F lowlij ,t,y,s = Yij Angi,t,y,s Yij Angj,t,y,s

(4)

M inF lowlij ,t,y F lowlij ,t,y,s M axF lowlij ,t,y

(5)

M inAngi Angi,t,y,s M axAngi

(6)

where L is the set of transmission lines; Yij is the admittance from node i to j; Angi,t,y,s is the voltage angle at node
i and M inAngi and M axAngi are its limits; M inF lowlij
and M axF lowlij are the min and max ow at line lij .

3) Generation limits: Constraints associated to generation

limits depend on the type and size of the generating units
g G, t T, y Y, s S.
M inGeng GenU nitg,t,y,s GenLoadg,t,y,s
GenLoadg,t,y,s M axGeng,t,y,s GenU nitg,t,y,s

(7)

where M inGeng and M axGeng are the min stable level

and max capacity of generator g, and GenU nitg,y,s is an
integer variable with the number of units of the generator.
4) Non-anticipativity constraints: Forcing rst-stage decision variables (investments) to be the same for all scenarios.
GenBuildg,y,1 = GenBuildg,y,s s S

(8)

D. Solution method and problem size

The mathematical program in equations (2)-(8) corresponds
to a Mixed-Integer Linear Program (MILP). Once formulated,
a MILP can be solved by a number of available optimization
solvers through a combination of Branch-and-Bound and cutting planes techniques. However, as the number of variables
grows these problems can easily become computationally
intractable, requiring compromises on the modeling detail to
reduce the number of variables. This can be achieved in a
number of ways, such as aggregating transmission buses, simplifying the modeling of transmission losses, and/or reducing
the number of stochastic scenarios. In this case study, we
aggregated the transmission system down to a level that ensured proper representation of the most important transmission
constraints, but as the mathematical problem remained too
large we also had to reduce the number of demand scenarios,
as section III will discuss.
III. T EST SYSTEM AND DEMAND SCENARIOS
The SING is a system supplying mainly industrial load
(about 90%) with 4.6 GW installed generation capacity
in 2012. Electric energy supply comes mainly from coalred units (83.0% of total generation in 2012), some newer
combined-cycle and open-cycle gas-red units (13.6%), some
fuel-oil and diesel peaking plants (2.8%), and a small amount
of hydro generation (0.5%). The CDEC-SING, the SING
independent system operator (ISO), provides on their website
databases of their system containing detailed production and
network data. These databases were adapted for the purposes
of this work and the outputs of the simulations were benchmarked against actual system outputs to check for correctness
and consistency. Our SING model was composed of 100
buses (from 13.8 kV to 345 kV), 124 transmission lines,
23 transformers, 53 incumbent generators, and 67 candidate
generation projects for expansion.
The planning horizon is 14 years, from 2013 to 2026. The
transmission system was expanded exogenously based on the
transmission expansion plan provided by the system operator.
Industrial and domestic demands were grown independently
based on growth rates based on historical data. Besides the
existing demand, there exist many large industrial and mining
projects that may or may not materialize during the planning

horizon, depending on exogenous factors (such as international

metal prices and capital costs). This fact introduces plenty
of uncertainty in the generation capacity expansion planning
process and is a cause of concern for system operators and
for both generation and industrial project investors. Table I
shows a list of 10 large industrial and mining projects being
considered, and the probabilities of materialization assigned
to each project by a panel of experts based on their state of
execution and market conditions and projections.
Generating all possible combinations for the projects would
create a unmanageable number of demand scenarios. As
some projects are mutually exclusive while some others are
interdependent, we could signicantly reduce the size of the
probability tree. At the end, we were capable of reduce the
number of demand scenarios to 12, with each scenario being
a combination of industrial/mining projects (see Table II). The
reduced set of 12 scenarios was then further reviewed by a set
of experts and found to be consistent and plausible.
Thus, each demand scenario will determine the right hand
side of equation (3) for the bus where the demand associated
to the project would connect, and the probabilities in Table II
will determine the value of s in the objective function (2)
for the respective scenario.
TABLE I
M INING DEMAND PROJECTS AND THEIR PROBABILITIES
Project name
Collahuasi Phase II expansion
Patache port expansion
Spencer Hipogeno Project
Desalination Sierra Gorda
Sierra Gorda
Escondida Services
Escondida desalination project
Zaldvar primary sulfur
Mine Ministro Hales
Mine Antucoya

Stage of the project

In construction
Potential
To start soon
In construction
Potential
In construction
In construction
Potential
In construction
In construction

Probability
0.9
0.6
0.8
0.95
0.6
0.85
0.85
0.6
0.95
0.8

TABLE II
P ROBABILITY OF EACH DEMAND SCENARIO
Scenario
1
2
3
4
5
6

Probability
0.096
0.081
0.089
0.094
0.091
0.091

Scenario
7
8
9
10
11
12

Probability
0.079
0.081
0.08
0.073
0.081
0.063

IV. S IMULATION RESULTS

The results for the proposed SMIP method were compared
against results using a deterministic MILP formulation and
against the generation investment plan suggested by the
system operator. Thus, in this section we present results for
3 different generation capacity expansion plans:
CDEC-SING plan: Generation investment plan informed
by the system operator. The plan did not consider some of
the industrial and mining demands considered by the other
models, so it will have some unserved energy when detailed

Stochastic Plan
Deterministic Plan
CDEC-SING Plan

3000

Expected Operational Costs [MMUS$]

Investment Cost [MMUS$]

5000
4500
4000
3500
3000
2500
2000
1500
1000
500

Stochastic Plan
Deterministic Plan
CDEC-SING Plan

2500

2000

1500

1000

500

25

24

23

22

21

20

19

18

17

16

15

26
20

20

20

20

20

20

20

20

20

20

20

14

20

13

20

Year

20

20
26

20
25

20
22
20
23
20
24

20
18
20
19
20
20
20
21

20
16
20
17

20
13
20
14
20
15

Year

Fig. 1. Annual generation investments for the different plans

operations are evaluated for some of the demand scenarios.

Deterministic plan: Generation investment plan optimized
from a deterministic formulation using the weighted average
of the 12 demand scenarios.
Stochastic plan: Generation investment plan obtained by
SMIP, optimized for the full set of demand scenarios.
The deterministic and stochastic generation investment
plans were obtained using the mathematical formulation described in Section II. The databases were implemented in the
software PLEXOS [16] and the mathematical programs were
solved using the optimization solver XPress [17] in an Intel i7960 processor with 4 cores and 24 GB of RAM. Both GCEP
models were implemented using monthly load duration curves
discretized in 5 blocks with a planning horizon from 2013 to
2026 and linearized transmission losses. They also used the
same solver parameters (MIP gap of 0.1%). Simulation times
and RAM requirements are reported in Table III.
TABLE III
S IMULATION TIMES AND COMPUTATIONAL RESOURCES

Model
Simulated
SMIP
Deterministic
CDEC-SING

Expansion
Time
Max. RAM
[hh:mm:ss]
[GB]
26:23:28
13.95
0:15:07
3.76
-

Operations
Time
Max. RAM
[hh:mm:ss]
[GB]
00:36:27
2.22
00:35:39
2.19
00:43:42
4.35

Figure 1 shows the investment costs for each expansion

plan. While the CDEC-SING plan investments are steadier,
both the deterministic and the SMIP plans concentrate their
investments between 2016 and 2018. While the deterministic
and the stochastic plans show some similarities, the second
one tends to invest more and to move some of the investments
to earlier years to avoid unserved energy in some of the most
extreme demand scenarios. By the end of the planning horizon
(2026), the stochastic plan built 4028 MW of new capacity,
against 3724 MW and 4126 MW of the deterministic and the
CDEC-SING plan.
The simulation results allowed obtaining some metrics
to evaluate the performance of the SMIP method. One of

Fig. 2. Annual expected operational costs for the different plans

these metrics is the Value of the Stochastic Solution (V SS),

corresponding to the difference between the Expected Result
of Using the Expected Value (EEV ) and the value of the
objective function of the SMIP problem (Recourse Problem,
RP ). The V SS corresponds to the increase in the expected
costs incurred for not taking into account the uncertainties
during the optimization. The V SS for this case study is 354
MMU$, or 1.13% of the EEV . Another metric is the Expected
Value of Perfect Information (EV P I), representing the value
of having perfect foresight when solving the optimization
problem, and corresponds to RP minus the Wait-and-See
(W S) solution. The EV P I is 1,035 MMU$.
After obtaining the generation capacity expansion plans,
each one of them was tested for the 12 demand scenarios
in a more detailed operational model in order to obtain their
operational costs had each of the demand scenarios materialized. Then, the expected operational costs were obtained by
calculating the weighted average cost, where the weights are
given by the probabilities in Table II.
As Figure 2 shows, the expected operational costs (fuel
costs plus unserved energy cost) are quite different for the
CDEC-SING plan and the optimized plans (deterministic and
stochastic), especially after 2017. Although the stochastic plan
has lower operational costs for all demand scenarios (as it
builds more capacity and builds it sooner), for the moderate
demand growth scenarios it has relatively similar costs with
the deterministic plan. However, gure 3 shows that their
operational costs can vary signicantly for the scenarios where
most or all the industrial/mining projects materialize (e.g.
scenario 1 and 4). Figure 3 also shows that the stochastic plan
is the one showing less variability across scenarios, suggesting
that it is more resilient to different demand assumptions.
Figure 4 shows total net present value (NPV) of the investment and expected operation costs for each of the capacity
expansion plans. The stochastic plan is the one with the lowest
NPV, while the CDEC-SING plan cost is the highest. When
simulating operations a posteriori in more detail for the set of
demand scenarios, the stochastic plan has signicantly less
expected energy not served, indicating a more robust and
resilient capacity expansion plan.

Stochastic Plan
Deterministic Plan
CDEC-SING Plan

1
2

12

Scenario

3
36000 [MMUS$]
32000 [MMUS$]
28000 [MMUS$]
24000 [MMUS$]
20000 [MMUS$]
4

11

10

6
7

Boxplot of annualized operational costs of each plan

Annualized Operation Costs [MMUS$]

34000

more, the stochastic plan was more robust for the full set of
scenarios and showed less variability across scenarios.
Although simulation time for the SMIP method was almost
100 times the time of the deterministic one, the 26 hours
it took to run was still reasonable considering the length
of the planning horizon, the transmission detail, the number of integer decisions involved, and the expected savings.
Furthermore, parallelization of SMIP problems for stochastic
unit commitment problems has shown to be quite promising
[14], [15], so the parallelization of the stochastic GCEP could
potentially reduce signicantly simulation times and allow the
solution for larger systems.

32000

R EFERENCES

30000
28000
26000
24000
22000
20000
Stochastic Plan

Deterministic Plan

CDEC-SING Plan

Fig. 3. Annualized expected operational cost variability across demand

scenarios

50000

Expected Total Costs [MMUS$]

45000
40000
35000
30000
25000
20000
15000
10000
5000
0

Average Load
Plan

Stochastic Plan
Investment Cost

CDEC-SING Plan

Expected Operation Costs

Fig. 4. Comparison of NPV of total expected costs for each capacity

expansion plan

V. C ONCLUSIONS
This paper presented a SMIP formulation for deciding future
generation investments considering uncertainty on the possible
future connection of large industrial and mining loads in the
Chilean SING. The methodology required to represent the
demand uncertainty as a nite set of scenarios, and to extend
the deterministic formulation of an investment problem to a 2stage stochastic mixed-integer program. In the future we intend
to improve our discrete representation of the demand and the
GCEP modeling by using multi-stage stochastic programming,
and exploring the sensitivity of the stochastic GCEP problem
to the number of demand scenarios.
The stochastic plan showed expected savings of over 350
million dollars with respect to the deterministic plan (1.1% of
the total investment plus expected operational cost). Further-

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