Economics, Planning and Operations

Linear programming is a tool that has yet to reach its full potential in power system engineering. To illustrate in a tutorial style how it is currently being applied and how its use evolved, applications are outlined in three areas: generation scheduling, loss minimization through allocation of reactive power supply, and planning of capital investments in generation equipment. The applications include not only linear programming but also its extensions to integer and quadratic programming and to the use of Benders and Danuig-Wolk decomposition techniques. The planning issues discussed show the limitations of traditional engineering economics to power system planning. This occurs when there is a spread between the interest rates for lending and for borrowing funds and also when investment funds have limits and thus are rationed. The result of this review is the recommendation that power system planning models should incorporate finanaal flows with the linear programming approach to capital budgeting originally formulated in 1963 by H. M. Weingartner. The need for such an approach is illustrated in the appendix with examples of how capital market conditions can upset the type of engineering economic decision making currently used in planning models. The Lagrangian relaxation method, which can extend computational feasibility for linear and integer programming, is also described in the appendix.