Optimization of Demand-Side Electricity Generation

Large scale industrial and commercial electricity consumers may have generation capacity, typically in the form of diesel generators, to guarantee security of supply. But self-generation can also be a means of reducing energy costs due to lines company tariffs and high spot market prices. We examine the problem of optimally utilising a generator to achieve the greatest savings in these areas. While this problem can be formulated easily as a linear program, it is not soluble by the Revised Simplex Method due to an intractable number of constraints. We propose an alternative algorithm for a deterministic problem that makes use of the problem’s unique structure to obtain optimal solutions with great computational efficiency. However, this algorithm is not easily extendable to a problem with stochastic spot market prices. For such cases we propose using a method of sequentially adding constraints to a relaxation of the problem and using the Dual Simplex Algorithm to maintain optimality while enforcing feasibility. We implement these algorithms using demand data from The University of Auckland and spot market prices from the Otahuhu reference node. We find that under the assumption that the fuel cost is sunk, the optimal allocation of generator fuel can result in significant savings on the cost of the security of supply provided by the generator.