Energy supply planning and supply chain optimization under uncertainty

In energy supply planning and supply chain design, the coupling between long-term planning decisions like capital investment and short-term operation decisions like dispatching present a challenge, waiting to be tackled by systems and control engineers. The coupling is further complicated by uncertainties, which may arise from several sources including the market, politics, and technology. This paper addresses the coupling in the context of energy supply planning and supply chain design. We first discuss a simple two-stage stochastic program formulation that addresses optimization of an energy supply chain in the presence of uncertainties. The two-stage formulation can handle problems in which all design decisions are made up front and operating parameters act as 'recourse' decisions that can be varied from one time period to next based on realized values of uncertain parameters. The design of a biodiesel production network in the Southeastern region of the United States is used as an illustrative example. The discussion then moves on to a more complex multi-stage, multi-scale stochastic decision problem in which periodic investment/policy decisions are made on a time scale orders of magnitude slower than that of operating decisions. The problem of energy capacity planning is introduced as an example. In the particular problem we examine, annual acquisition of energy generation capacities of various types are coupled with hourly energy production and dispatch decisions. The increasing role of renewable sources like wind and solar necessitates the use of a fine-grained time scale for accurate assessment of their values. Use of storage intended to overcome the limitations of intermittent sources puts further demand on the modeling and optimization. Numerical challenges that arise from the multi-scale nature and uncertainties are reviewed and some possible modeling and numerical solution approaches are discussed. (C) 2013 Elsevier Ltd. All rights reserved.