Irreversible investments with delayed reaction an

Authors: Magnus Perninge Lennart Söder

Publish Date: 2013/11/30

Volume: 79, Issue: 2, Pages: 195-224

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Abstract

In this article we consider how the operator of an electric power system should activate bids on the regulating power market in order to minimize the expected operation cost Important characteristics of the problem are reaction times of actors on the regulating market and ramprates for production changes in power plants Neglecting these will in general lead to major underestimation of the operation cost Including reaction times and ramprates leads to an impulse control problem with delayed reaction Two numerical schemes to solve this problem are proposed The first scheme is based on the leastsquares Monte Carlo method developed by Longstaff and Schwartz Rev Financ Stud 14113–148 2001 The second scheme which turns out to be more efficient when solving problems with delays is based on the regression Monte Carlo method developed by Tsitsiklis and van Roy IEEE Trans Autom Control 44101840–1851 1999 and IEEE Trans Neural Netw 124694–703 2001 The main contribution of the article is the idea of using stochastic control to find an optimal strategy for power system operation and the numerical solution schemes proposed to solve impulse control problems with delayed reaction

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