Optimal Energy Commitments with Storage and Intermittent Supply

Authors:
Jae Ho Kim;Warren B. Powell
Affiliations:
Department of Electrical Engineering, Princeton University, Princeton, New Jersey 08540;Department of Operations Research and Financial Engineering, Princeton University, Princeton, New Jersey 08540
Venue:
Operations Research
Year:
2011

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Abstract

We formulate and solve the problem of making advance energy commitments for wind farms in the presence of a storage device with conversion losses, mean-reverting price process, and an autoregressive energy generation process from wind. We derive an optimal commitment policy under the assumption that wind energy is uniformly distributed. Then, the stationary distribution of the storage level corresponding to the optimal policy is obtained, from which the economic value of the storage as the relative increase in the expected revenue due to the existence of storage is obtained.