ORIE Colloquium: Inventory Management in the Presence of Renewable Energy
Tuesday, January 31 at 4:15pm
Frank H.T. Rhodes Hall, 253
Speaker: Sachin Adlakha
Center for the Mathematics of Information, California Institute of Technology
The increasing penetration of intermittent, unpredictable renewable energy sources, such as wind energy, pose significant challenges for the utility companies trying to incorporate renewable energy in their portfolio. In this talk, we discuss inventory management issues that arise in the presence of intermittent renewable resources. We model the problem as a three stage newsvendor problem with uncertain supply and model the estimates of wind using a martingale model of forecast evolution. We describe the optimal procurement strategy and use it to study the impact of proposed market changes and of increased renewable penetration. A key insight from our results is to show a separation between the impact of the structure of electricity markets and the impact of increased penetration. In particular, the effect of market structure on the optimal procurement policy is independent of the level of wind penetration. Additionally, we study two proposed changes to the market structure: the addition and the placement of an intermediate market. Importantly, we show that addition of an intermediate market does not necessarily reduce the total amount of energy procured by the utility company.
College of Engineering, Operations Research and Information Engineering