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Multi-horizon stochastic programming

Michal Kaut (Michal.Kaut***at***sintef.no)
Kjetil T. Midthun (Kjetil.Midthun***at***sintef.no)
Adrian S. Werner (AdrianTobias.Werner***at***sintef.no)
Asgeir Tomasgard (asgeir.tomasgard***at***iot.ntnu.no)
Lars Hellemo (Lars.Hellemo***at***sintef.no)
Marte Fodstad (Marte.Fodstad***at***sintef.no)

Abstract: Infrastructure-planning models are challenging because of their combination of different time scales: while planning and building the infrastructure involves strategic decisions with time horizons of many years, one needs an operational time scale to get a proper picture of the infrastructure's performance and profitability. In addition, both the strategic and operational levels are typically subject to significant uncertainty, which has to be taken into account. This combination of uncertainties on two different time scales creates problems for the traditional multistage stochastic-programming formulation of the problem due to the exponential growth in model size. In this paper, we present an alternative formulation of the problem that combines the two time scales, using what we call a multi-horizon approach, and illustrate it on a stylized optimization model. We show that the new approach drastically reduces the model size compared to the traditional formulation and present two real-life applications from energy planning.

Keywords: stochastic programming, multistage, energy planning, scenario tree construction

Category 1: Stochastic Programming

Citation: Published in Computational Management Science, 11 (1-2), pp. 179-193, 2014. DOI:10.1007/s10287-013-0182-6.

Download: [PDF]

Entry Submitted: 08/01/2012
Entry Accepted: 08/01/2012
Entry Last Modified: 03/10/2017

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