ECONOMIC DISPATCH

Cost of generation
Introduction
Consider a generating company that tries to maximize the profits it
derives from the sale of electrical energy produced by a single
generating unit called unit i.
Consider a period of one hour and assuming that all quantities
remain constant during that period.
The maximization of the profit from this unit during this hour can be
expressed as the
“difference between the revenue resulting from the sale of the
energy it produces and the cost of producing this energy”
The expression is given as,
max  i  max[ .Pi  Ci ( Pi )]
where Pi is the power produced by unit i during that hour, π is the
price at which this energy is sold and Ci(Pi ) is the cost of producing
this energy
If Power is the only variable for this generation plant, then for
optimality to be achieved, we have;
d i d ( .Pi ) dCi ( Pi )
  0
dPi dPi dPi
The first term in this expression represents the marginal revenue MRi
of unit i. That is, the revenue the company would get for producing an
extra megawatt during this hour. Therefore;
d ( .Pi )
MRi 
dPi
On the other hand, the second term represents the marginal cost
MCi which is the cost the company incurs for producing this extra
megawatt. Therefore.
dCi ( Pi )
MCi 
dPi
To maximize profits, the production of unit i must therefore be
adjusted up to the level at which its marginal revenue is equal to its
marginal cost.
MRi  MCi  
The marginal cost includes the costs of fuel, maintenance and all other items
that vary with the power produced by the unit.
Since the price is considered as given, this implies that all generating units can
be dispatched independently, even if a generating company owns more than
one unit.
It should be noted that generating units fired with fossil fuels are characterized
by input–output curves that specify the amount of fuel (usually expressed in
MJ/h or MBTU/h) required to produce a given and constant electrical power
output for one hour.
 example
Consider a coal-fired steam unit whose minimum stable generation is
100MW (i.e the minimum amount of power that it can produce
continuously) and whose maximum output is 500MW. On the basis of
measurements taken at the plant, the input–output curve of this unit
is estimated as

H1 P1  110  8.2 P1  0.002P1 MJ h 2

The hourly cost of operating this unit is obtained by multiplying the

input–output curve by the cost of fuel F in $/MJ:

2
C1 P1  110 F  8.2 FP1  0.002FP $ h1
Assuming that the cost “F” of coal is 1.3 $/MJ, then the cost curve of
this unit is
2
C1 P1  143  10.66 P1  0.0026 P $ h1

If the price at which electrical energy can be sold is 12 $/MWh,

determine the output that this unit should produce.
dC1 ( P1 )
 10.66  0.0052 P 1  12$ MWh
dP1
P 1  257.7 MW

In practice, optimally dispatching even a single generating unit involves

many challenges/ constraints which will affect the basic dispatch.
The cost and technical characteristics of the generating units affect the
basic dispatch and are examined below.
 cost and technical genset characteristics effect on basic dispatch

1-Unit/ generator limits

Generators normally have minimum and maximum limit output and
depending on the market price, the generator will have a given optimal
output. The following conditions have to be satisfied for optimal dispatch.
dCi ( Pi )
, Pi min  Pi  Pi max ………………. (i)
dPi
dCi ( Pi ) Pi  Pi max……………………………..(ii)
,
dPi
dCi ( Pi ) Pi  Pi min ……………………………(iii)
,
dPi
 clearly from the above conditions, the generator will make profits
from condition (ii) if production is at maximum.
Condition (iii) suggests that the generator cannot operate profitably
at that price and thus the only way to avoid losing money on its
operation is to shut it down.
From the initial example, condition (ii) can be satisfied if ;

dC1 ( P1 )
 10.66  0.0052  500  13.26$ MWh
dP1 500MW
In other words, the generator will produce at maximum provided the
market price is 13.26$/MWh
For condition (ii)
For condition (iii), then;
dC1 ( P1 )
 10.66  0.0052 100  11 .18$ MWh
dP1 100MW

This suggests that when the market price is 11.18$/MWh, the generator should not be operated.

2 - Environmental constraints
Generating plants must abide by environmental regulations that may affect their ability to
operate at their economic optimum. Emissions of certain pollutants by fossil-fuelfired power
plants are increasingly regulated.
In some cases, the rate at which a certain pollutant is released in the atmosphere is limited,
thereby reducing the maximum power output of the plant.
In other cases, it is the total amount of a pollutant released over a year that is capped, putting a
complex integral constraint on the operation of the plant.
While hydroelectric plants do not emit pollutants and are more flexible than thermal plants,
there may be constraints on their use of water.
3-Dynamic constraints
Starting up or shutting down a thermal generating unit or even
increasing or decreasing its output by more than a small amount causes
considerable mechanical stress in the prime mover.
Excessive stress damages the plant and shortens its life and may prevent
it from achieving its economically optimal output in successive periods
 ECONOMIC DISPATCH PROBLEM
The concept of economic dispatch looks into how generation will be
distributed among the available generators while operating at the lowest
cost possible and at the same time meeting the load requirements

Consider the case of a generating company that has signed a contract for
the supply of a given load L during a single hour.

Assuming the generating company has N gen sets to meet the required load

It will obviously try to produce the energy required at minimum cost to
itself.
• The total cost rate of this system is the sum of the costs of
each of the individual units.
• The essential constraint on the operation of this system is
that the sum of the output powers must equal the load
demand.
• Mathematically, this can be formulated as the following
optimization problem
N
Minimize C i ( P i )
i 1

• subject to
N

P  L
i 1
i
where Pi represents the production of unit i of the portfolio and Ci(Pi )
the cost of producing this amount of power with this unit.

The above problem can be solved by forming a Lagrangian function that

combines the objective function to the constraint

The Lagrangian function is formed by adding the constraint function to

the objective function after the constraint function has been multiplied by
an undetermined multiplier also known as the Lagrangian Multiplier “λ”
Such that;
N
 N

( P1 , P 2 ,.....P N ,  )   C i ( P i )    L   P i 
i 1  i 1 
• In order to solve the above problem so as to obtain an optimal solution, it is
necessary to take the first partial derivatives of each independent variable of
the Lagrangian function and then equate them to zero.
• Solving the above function thus gives;

  N
 N

( P1 , P 2 ,..... P N ,  )   C i ( P i )    L   P i 
( P i ,  )  i 1  i 1 
iN
•  C i
   0
• P i P i i 1
………………(i)

  N

  L   Pi   0
•   i 1  ………………. (ii)
Solving equation (i) gives;
iN
C i

P i i 1

Therefore;
C 1 C 2 C N
  ....... 
P1 P 2 P N
………………. (iii)

From equation (iii) above, we conclude that;

all the generating units should be operated at the same marginal cost and
that this marginal cost is equal to the value of the Lagrange multiplier λ:
we must also add the constraint equation that the sum of the power outputs must be
equal to the power demanded by the load.
In addition, there are two inequalities that must be satisfied for each of the units. That is,
“The power output of each unit must be greater than or equal to the minimum power
permitted and must also be less than or equal to the maximum power permitted on that
particular unit.”
 In summary,

C 1 C 2 C N …….. For N equations

  ....... 
P1 P 2 P N

………. Inequality due to generator limits

Pi min  Pi  Pi max
N

P
i 1
i L ……….. constraint
 Example 1
The 300-MW load of a small power system must be supplied at minimum cost
by two thermal generating units and a small run-of-the-river hydro plant. The
hydro plant generates a constant 40MW and the cost functions of the thermal
plants are given by the following expressions:
2
C A  20  1.7 PA  0.04 P $ h A
2
C B  16  1.8PB  0.03P $ h B
The Lagrangian function of this optimization problem can be written as follows:

 C A  P A  C B  P B     L  P A  P B 
Note that the value of the load L is 260 MW after deducting the 40MW
produced from Hydro.
 Example cont’d
Setting the partial derivatives of the Lagrangian equal to zero, we obtain the
necessary conditions for optimality

 1.7  0.08P A   0
P A

 1.8  0.06 P B   0
P B

 L P AP B  0


Solving for the value of λ gives;

  10.67$ / MWh
 Example cont’d
We can then calculate the optimal outputs of the thermal units

P A  112 .13MW
P B  147.87 MW

Replacing these values in the cost functions, we find the total cost of supplying
this load;
C TOTAL C A  P A  C B  P B   1651.63$ / h
Solutions to Qn. 2

  9.148 $ MWh
P1  393.2 MW
P 2  334.6 MW
P 3  122.2 MW