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Monte Carlo Computation of Power Generation Production Cost under Unit Commitment Constraints

J. Valenzuela & M. Mazumdar Industrial Engineering Department University of Pittsburgh Pittsburgh, PA 15261

Abstract: A highly efficient Monte Carlo procedure for estimating the mean and variance of electric power production cost under unit commitment constraints is proposed. Such estimates are useful in making near-term operational decisions. We show that for this purpose it is essential to consider the stochastic processes associated with generation unit outages. When unit commitment constraints are taken into account in the production-costing model, a combined combinatorial and continuous optimization problem needs to be solved at each hour for each Monte Carlo run. This tends to make the computations quite long. We propose a method to reduce the required number of Monte Carlo runs by using a control variate technique on batches. We present the results for a small electric power generating system where we achieved a reduction of sample size by a factor of 10 for the variance and by a factor of 42 for the mean.

Keywords: power generation, production costs, Monte Carlo, unit commitment, stochastic models.


Production costing models are widely used in the electric power industry to forecast the cost of producing electricity. These forecasts are used as inputs in financial planning, fuel management, and operational planning. It is the purpose of this paper to describe a Monte Carlo procedure for estimating the mean and variance of production costs that has a much higher degree of precision than that of 8 direct Monte Carlo procedure and will require much fewer runs. We consider operating constraints and start-up costs that typically appear in the unit commitment problem. We also demonstrate that in these simulations it is imperative that the stochastic processes associated with generator forced outages and repairs be modeled. An illustration of such a simulation of production costs using stochastic models is given in [6]. The cost of producing electric power is a random variable because it is dependent upon the uncertain mix of available generators and the uncertain demand. The well-known Baleriaux formula [l] accounts only for the uncertainty resulting from the forced outages of generating units and provides a formula for the expected value of production costs in the steady state. It does not consider operating constraints. Monte Carlo chronological simulation of production costs is frequently carried out for predicting short-term production

costs because it has the capability of capturing the unit commitment considerations such as start-up costs, shutdown costs, minimum up and down times. Typically, in these simulations, the time-varying aspect of the load is explicitly modeled in a deterministic fashion, and the random generating unit outages are sampled fkom distributions considering their FORS only [2]. It is the purpose of this paper to point out that the steady state assumptions inherent in the use of the FOR index may lead to incorrect results particularly when the initial operating status of the generating units is known. Section 11 illustrates this fact by providing a numerical example for a small generation system. When operating constraints are considered in the production- costing model, a combinatorial optimization in the form of cost minimization is carried out for each Monte Carlo run. This tends to make the computations quite lengthy. Section III proposes a “variation reduction” scheme [3,5],which considerably reduces the required number of Monte Carlo runs.



We illustrate here the importance of considering the stochastic processes with the help of an example for a small generating system taken from Wood and Wollenberg [lo]. The values of the cost parameters and those related to the unit commitment constraints are reproduced in Table 1. The last two columns give the assumed values of the mean up and down times for each generating unit, which do not appear in [lo]. The hourly load values are given in Table 2, and are considered to be deterministic. We assume that this load pattern is repeated every eight hours.

A. The ProductionCosting Model

It is assumed that the costs are being calculated for a power generation system consisting of N generating units over a time interval [O,T]. (For our example, N = 4.) The following additional assumptionsare made:

1. The generating units are committed such that the total production cost is minimized subject to the constraints on minimum up time, minimum down time, startup Costs, no load costs, and spinning reserve. The committed units are loaded using an economic dispatch algorithm. The ith unit has a maximum capacity P,””“ (MW), minimum capacity Py (MW), no load cost a, ($), variable energy

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cost b, ($/MWH), minimum up time tyP (h), minimum down time t? (h), average full load cost Ki ($/MWH),

mean time to failure hi-’ (h), mean time to repair kv1(h),

and a forced outage rate, pi , i=1,2, The cost of

unserved energy is F($/MWH). The operating state of each generating unit i follows a two-state continuous-time Markov chain, Yi(t), with

failure rate hi and repair rate pi. The forced outage rate p,


pi =ai/(a, +p,). For i f j, Yi(t> and Yj(s) are statistically independent for all values oft and s. The chronological load, u(t), is assumed to be completely known (deterministic) for each hour t over the time horizon [O,T]. Transmission losses are considered to be negligible. All units are assumed up at the beginning of the time interval.









! ”



Figure I : Tnnsition states.

The operating states of the generating units are first classified according to their availabilities (Fig. 1). If a unit is available (up), it may be in either of two states: committed (on) or decommitted (off). The latter state indicates that the unit is available but is not being used for the purpose of generating power. If a unit is unavailable (down), it is under repair, and upon the completion of such repair it proceeds to the decommitted or off state. The transitions from an available state to the unavailable state and vice versa occur in accordance with the assumed failure and repair rates of each generating unit. In the Monte Carlo simulation, a unit commitment problem (UCP) is solved at each hour, t, during each run of the Monte Carlo simulation. The units with status “available” at hour t are the only units considered for being committed at that hour. We use forward dynamic programming [lo] to determine the optimum commitment schedule for a time horizon of eight hours. Table 3 gives estimated values of the mean and variance of production costs for the generation system of Tables 1 and 2 for a period of 168 hours based on 1000 Monte Carlo runs for two different scenarios. The first scenario (unit commitment constraints or UCC) refers to the situation in which the units are committed and dispatched in accordance with their operating constraints. The second scenario (merit order loading with average full load cost or AFLC) refers to the situation in which the units are dispatched in accordance with a merit order based on the

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average full load cost and the operating constraints are not considered. This table shows the estimated mean and variance of the production cost for a set of several different values of the mean times to failure and repair for the generating units. These values are obtained by multiplying the initial values of these parameters as given in Table 1 by a constant k.This multiplication does not change the assumed forced outage rates for the units. Yet, it is found in Table 3 that as the value of k is increased, the estimated values of the mean and variance change significantly. This table clearly demonstrates that the mean and variance depend not only upon the unit forced outage rates but also on the frequency and duration of unit outages. To further illustrate this point, we run the Monte Carlo simulation using just the forced outage rates [2]. The results are given in Table 3 in the top row labeled “FOR”. We observe that when we take into account the initial operating status of the generating units, the estimates based on the FOR may be quite different from those obtained using the actual mean up and down times of the generating units. The reasons why a consideration of the stochastic processes underlying the frequency and duration of generation outages is necessary for the computation of the variance has been described in detail in [4] and 173. For the computation of the mean, we have assumed that the initial operating status of the generating units is known. Thus, it is important that the transient conditions at the beginning of the interval be accounted for. It is incorrect to do the computations via the lorced outage rate, which is a steady state measure.

Table 3: Estimate of the mean and variance of production cost for 168 hours (1,000 samples).









The particular variance reduction technique adopted is the Control Variate method, which was also used in a similar context by Breipohl et al. [3]. It consists in generating in addition to the primary random variable of interest another random variable that is highly correlated with the former but in whose case the expected value can be analytically computed. In our application, we use the same set of random numbers to simultaneously produce two estimates of production cost for each Monte Carlo run: (a) one using operating constraints, and (b) the other ignoring these



Table 1: Unit characteristics.


Table2: Load profile.




51 61



I 450 I 530 I600 I540 I 400 1 280 I 290 I 500

constraints and using a strict merit order loading based on


average full load cost. Figure 2 shows that these two estimates are highly correlated. To obtain estimates of the variance, we subdivide the entire ensemble of n Monte Carlo runs into m batches each consisting of k mutually exclusive runs (n=mxk) [8]. For each batch, we compute the sample mean and variance of production costs computed according to the above two sets of assumptions. Somewhat serendipitously we found that the batch variance of the costs under scenario (a) is highly correlated (see Figure 3) with the

The Monte Carlo simulation was done with the following parameters: n=2,000 replications, m=50 (number of batches), k=40 (batch size), T=24 hours (load profile from Table 3 was repeated three times), F=$135 (penalty cost $/MwH), and N=4 generating units. From the simulation output, we obtained an approximate 95% confidence interval for the mean, variance, and standard deviation of the production costs under scenario (a):

sample batch average under scenario (b). A similar technique was used by Mazumdar and Kapoor [5] for reducing the


[230,117- 232,0731

variance of production costs under scenario (b). They have


[334,420,915- 657,387,0481

also provided reasons for the observed correlation.

Standard deviation:

[18,287- 25,6391

Evaluating the analytical expression given in [9], we obtain Ihe expected value of production cost under scenario (b) to be $214,918. Using the same simulation output, we obtained an approximate 95%confidence interval for the mean, variance, and standard deviation of the production costs under scenario (a) using the control variate technique:



[230,821- 231,1211





[464,682,585- 564,594,9321


Standard deviation:

[21,556- 23,7611

Figure 2: Correlationbetween ProductionCosts with Operating Constraintsand Merit OrderLoading with AFLC.

Figure 3: Correlation between

and S: .

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These intervals are much shorter than the ones obtained without using variance reduction. In order to obtain the same width for the confidence interval as the one above using direct Monte Carlo, we would need 84772 replications instead of 2000 for estimating the mean, and 522 batches instead of 50 for estimating the variance. For this example, use of this particular control variate reduces the sample size by a factor of 42 when we are estimating the mean and by a factor of 10 when we are estimating the variance.


The results of this paper show that an accurate evaluation of the mean and variance of electric power production costs requires the explicit modeling of the stochastic processes associated with the generator forced outages and repairs. Analytical computation of these quantities is difficult and Monte Carlo appears to be the only feasible alternative.


Monte Carlo simulation might also become quite time consuming when operating constraints are considered and each run requires solving a combinatorial optimization problem. To reduce the computational burden of Monte Carlo this paper has proposed a variation reduction procedure using the control variate technique. For this procedure we have chosen the control variate to be the production cost based on priority loading. A prerequisite for the application of this technique is that an analytical expression for the expected value of the control variate is available. We have obtained this expression for a small system using direct enumeration of outage states. For a larger system it will be necessary to use a more refined algorithm for carrying out this analytical computation. Ou; example shows- that the chosen control variate results in a significant sample size reduction.


Baleriaux, H., E. Jamoulle, and Fr. L. de Guertechin, “Simulation de 1”Exploitation d’un Parc de Machines Thermiques de Production d”E1ectricite Couple a des Stations de Pompage,” Revue E (edition SRBE),5, 1967, pp. 22.5-245. Breipohl A., F. Lee, and J. Chiang, “Stochastic Production Cost Simulation,’’ Reliability Engineering and System Safety, 46, 1994, pp.


Breipohl A., F.N.Lee, J. Huang, and Q. Feng, “Sample Size Reduction in Stochastic Production Simulation,” IEEE Trans. Power Syst-, 5, 3, August 1990, pp. 984-992.

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Lee, F.N., M.Lin, and A.M. Breipohl, “Evaluation of the Variance of Production Cost Using a Stochastic Outage Capacity Model,” IEEE Trans. Power Syst;, 5, 1990,pp. 1061-1067. Mazumdar M. and A. Kapoor, “Variance Reduction in Monte Carlo Simulation of Electric Power Production Costs,” American Journal of Mathematical and Management Sciences, 17,3 & 4,1997, pp-239-262. Mazumdar, M. and A. Kapoor, “Stochastic Models for Power Generation System Production Costs,” Elec. Power Syst. Res., 35. 1995, pp. 93-100. Ryan, S.M.and M. Mazumdar,“Effect of Frequency and Duration of

Generating Unit Outages on Distribution of System Production Costs,” IEEE Trans.Power Syst 5, 1990, pp. 191-197.

Schmeiser B., “Batch Size Effects in the Analysis of Simulation Output,” Operations Research, 30.3, May-June 1982, pp. 556-567. Valenzuela, J. and M. Mazumdar, “Stochastic Monte Carlo Computation of Power Generation Production Cost under Operating Constraints,”submitted to IEEE Tmns. Power Syst. (under review).

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Wiley & Sons, Inc., Second Ed., 1996, pp. 145.





[IO] Wood


Mainak Mazumdar received his Ph.D. in Industrial Engineering from Cornell University in 1966. He worked as a Research Scientist at the Westinghouse R&D Center during the period 1966-1981. Since 1981, he has been a faculty member in the Department of Industrial Engineering at the University of Pittsburgh.

Jorge Valenzuela received his BS in Electronic Engineering from Northern Catholic University in Chile in 1984. He obtained an MS degree in lndustrial Engineering at Northern Illinois University in 1996. Currently he is a Ph.D. candidate at the University of Pittsburgh.