- Economic Dispatch Definition: The economic dispatch problem is defined as a process that assigns power generation to different facilities to meet demand while minimizing costs.
- Security-Constrained Dispatch: SCED ensures the power grid operates within safety limits while aiming for cost-effective energy distribution.
- Merit Order Effect: The MOE describes how renewable energies lower electricity costs by supplying power at cheaper rates than conventional plants.
- Operational Constraints: Economic dispatch requires consideration of system constraints, ensuring reliable and efficient power generation.
- Impact of Renewables: Renewables significantly alter the energy market’s dynamics by supplying power at minimal costs during peak times, challenging traditional energy sources.
What is Economic Dispatch?
Economic dispatch allocates output among available generators to meet forecast or real-time demand at the lowest modelled operating cost. It is subject to generator, reserve and network constraints. Merit order is a simplified way to describe part of this process, not a synonym for the full optimisation.
The model balances supply and demand while respecting limits such as minimum and maximum output, ramp rates, reserve requirements, transmission capacity and operating security.
The result specifies generator set points for the dispatch interval. Day-ahead and real-time markets may run related optimisations at different time scales and with different inputs.
In an unconstrained merit-order example, lower marginal-cost offers are selected first and the marginal unit is the last one needed to meet demand. In networked markets, losses, congestion, reserves and market rules can produce different marginal prices by location.
Dispatch minimises the stated objective for the current interval. Unit commitment is the related problem that decides which units start or remain online and can include start-up, shutdown and no-load costs.
Operators solve economic dispatch with optimisation software and current system data. A valid result must satisfy the modelled operational limits and transmission constraints, not just rank generators by one cost figure.
Interconnected power plants share demand through the grid system. Dispatch coordinates their output while accounting for resource availability, operating limits and network conditions.
Cost inputs may include incremental fuel, variable operation and maintenance, emissions or market offers, depending on the system. A cost per megawatt-hour is a rate, while total dispatch cost also depends on output and time.
A simple merit-order stack ranks available offers from low to high marginal cost. Actual dispatch can move out of that order when a generator reaches a limit, a transmission path is congested or a reliability constraint binds. Fixed investment cost is not the same as short-run marginal cost.
Security-Constrained Economic Dispatch (SCED)
Security-constrained economic dispatch (SCED) minimises the dispatch objective while enforcing generator limits, transmission limits and specified contingency or reserve constraints. Many implementations use a network model related to a simplified optimal power flow (OPF).
OPF is the broader optimisation framework for choosing control variables while satisfying power-flow equations and equipment limits. Depending on the formulation, it may use an AC network model or a linearised DC approximation.
Operational SCED commonly uses linear or quadratic optimisation because it must solve reliably and quickly. Network-flow, nonlinear and decomposition methods also exist. Heuristic methods such as genetic algorithms appear in research, but naming an algorithm does not establish suitability for real-time grid operation.
Merit Order Effect (MOE)
Wind and solar generation usually have low short-run marginal costs. When available output enters ahead of higher-cost offers, it can shift the supply stack and lower wholesale energy prices for that interval. This is called the merit order effect.
The price effect is not constant. It depends on renewable output, demand, fuel prices, transmission congestion, storage, curtailment, scarcity rules and the design of the relevant market.
A market clears offers and bids subject to its operating rules. The selected marginal offer may set an energy price, but security constraints can require higher-cost resources at particular locations.
Pricing is market-specific. Some systems use locational marginal prices that include energy, losses and congestion; others use zonal or different settlement designs. It is therefore incorrect to assume that every generator and buyer always receives or pays one system-wide price.
High output from low-marginal-cost wind or solar can reduce the dispatch and market revenue of higher-cost units. It does not necessarily reduce every consumer bill because retail prices also include networks, contracts, taxes and other charges.
Variable renewable output does not always coincide with peak demand. When it is available, it reduces residual load, which is demand remaining for dispatchable generation, storage, imports or demand response.
The merit order effect describes a short-run wholesale-market outcome. Long-run investment, resource adequacy, balancing costs and reliability services require separate analysis.
References
- B. H. Chowdhury and S. Rahman, “A review of recent advances in economic dispatch,” in IEEE Transactions on Power Systems, vol. 5, no. 4, pp. 1248-1259, Nov. 1990, doi: 10.1109/59.99376.
- Chen, C., Qu, L., Tseng, M., Li, L., Chen, C., & Lim, M. K. (2022). Reducing fuel cost and enhancing the resource utilization rate in energy economic load dispatch problem. Journal of Cleaner Production, 364, 132709. https://doi.org/10.1016/j.jclepro.2022.132709.
- R. A. Jabr, A. H. Coonick and B. J. Cory, “A homogeneous linear programming algorithm for the security-constrained economic dispatch problem,” in IEEE Transactions on Power Systems, vol. 15, no. 3, pp. 930-936, Aug. 2000, doi: 10.1109/59.871715.
