Economic Dispatch

Economic dispatch (ED) is the optimization problem of allocating the total required generation among available online units so as to minimize the total operating cost, primarily fuel cost, while satisfying demand, respecting each generator's minimum and maximum output limits, and accounting for transmission losses.

Key Aspects of Economic Dispatch:

• Equal Incremental Cost Principle: The optimal solution requires all dispatched generators to operate at the same incremental (marginal) cost, adjusted for loss penalty factors. A generator with a lower incremental cost should produce more until its cost rises to match the others.
• Lambda Iteration: The classic solution method iterates on the system marginal cost (λ) until the sum of all generator outputs equals the required demand plus losses. Modern implementations use linear programming, quadratic programming, or Lagrangian relaxation for larger, more constrained systems.
• Loss Penalty Factors: Generators in different locations contribute differently to transmission losses. Loss penalty factors (B-coefficients or full AC loss formulation) adjust each generator's effective cost to reflect its impact on system-wide losses, influencing dispatch away from loss-heavy locations.
• Market Pricing Foundation: In wholesale electricity markets, the system marginal cost from economic dispatch directly sets the market clearing price (or locational marginal price in nodal markets). All dispatched generators receive this price, creating incentives for cost-efficient operation.
• Modern Constraints: Today's economic dispatch incorporates transmission security constraints (security-constrained economic dispatch, SCED), emission limits, ramp rate constraints, and must-run renewable obligations, making it a rich optimization problem solved every 5 minutes in real-time markets.