Economic dispatch management of electric power plants for profit maximization

Abstract

The key strategy of power plant business in the deregulated electricity supply industry is to maintain profitability, especially for a private energy company that allows general public to take part in investment for business expansion. The right strategy move is to maximize profit from selling electricity and steam, at the same time fund intensive research and development programs to seek for new alternative energy in order to supplant limited fuels and lower cost of production. The corporate annual report revealed that the major source of revenue comes from the sales of electricity and steam; however, profit has continually declined over the past few years. Decreasing profit was partially due to external effects, such as monopolized pricing determination and volatile economic factors. The company is not allowed to proportionally adjust the prices of electricity and steam to changes in such effects. The executives identified that the main cause of decreases in profit is from independent production and operations management without economic dispatch applications among the power plants. Consequently, the company had to excessively stock up fuels and schedule unplanned maintenance, which resulted in lower productivity and incapability to deliver some outputs to the customer. A spreadsheet-based program was developed to help make a small-scaled managerial decision, how much electricity and steam should be generated and sold to each customer group during periods of peak hours and off-peak hours to achieve maximum profit without violating the sales contract agreements. Several quantitative determination processes for unit cost, prices and profits were constructed and later embedded in the spreadsheet program. The mathematical linear programming model for optimizing total profit during each of the periods was formulated. Two feasible scenarios for each of the periods were comparatively simulated to see the best alternative towards profit maximization. The simulation results show that the optimal scenario is applicable to both periods. Although some electricity demand could not be fully satisfied resulting in penalty, this scenario provided the total maximum profit and was able to satisfy the power systems and the legal constraints while not severely violating the sales contract agreements relative to another scenario. The results from sensitivity analysis of exchange rate, coal price, fuel oil price, coal-to-biomass fuel ratio and fuel transfer charge also show that all of these factors have strong effects on profitability, allowing to examine a series of possible changes that will not affect the optimal solution of economic dispatch management.