European Journal of Operational Research 171 (2006) 1113–1126

www.elsevier.com/locate/ejor

Non-convex power plant modelling in energy optimisation

a,* b
Simo Makkonen , Risto Lahdelma
a
Process Vision Ltd, Melkonkatu 18, FIN-00210 Helsinki, Finland
b
University of Turku, Department of Information Technology, Lemminkäisenkatu 14 A, FIN-20520 Turku, Finland

Available online 10 March 2005

Abstract

The European electricity market has been deregulated recently. This means that energy companies must optimise
power generation considering the rapidly fluctuating price on the spot market. Optimisation has also become more dif-
ficult. New production technologies, such as gas turbines (GT), combined heat and power generation (CHP), and com-
bined steam and gas cycles (CSG) require non-convex models. Risk analysis through stochastic simulation requires
solving a large number of models rapidly. These factors have created a need for more versatile and efficient deci-
sion-support tools for energy companies.
We formulate the decision-problem of a power company as a large mixed integer programming (MIP) model. To
make the model manageable we compose the model hierarchically from modular components. To speed up the optimi-
sation procedure, we decompose the problem into hourly sub-problems, and develop a customised Branch-and-Bound
algorithm for solving the sub-problems efficiently. We demonstrate the use of the model with a real-life application.

2005 Elsevier B.V. All rights reserved.

Keywords: Energy management; Deregulation; Energy market; Optimisation; Mixed integer programming

1. Introduction ration of monopolistic network operations from

The recent deregulation of the European elec-
tricity market has involved the unbundling of the
power generation, transmission, trade and retail
businesses, and in some cases splitting very large
utilities into smaller competing companies. Sepa-
*
Corresponding author. Tel.: +358 9 25320 300; fax: +358 9
25320 360.
E-mail addresses: simo.makkonen@processvision.fi (S.
Makkonen), risto.lahdelma@cs.utu.fi (R. Lahdelma).
the other (competitive) businesses is particularly
important, because this prevents unfair competi-
tion through cross-subsidisation. These changes
have created a highly volatile power market, where
competition is intense. Consequently, several new
instruments for trading and risk hedging have ap-
peared on the market. In particular, the traditional
physical long-term contracts have been replaced
by contract portfolios consisting of a large number
of short-term contracts. This means that the pro-
duction and trade must be optimised accurately

0377-2217/$ - see front matter
2005 Elsevier B.V. All rights reserved.
doi:10.1016/j.ejor.2005.01.020
1114 S. Makkonen, R. Lahdelma / European Journal of Operational Research 171 (2006) 1113–1126
enough to meet the spot market variations, and it
is also necessary to repeat the optimisation daily,
hourly or ever more frequently in order to react
to the rapidly changing situations.
The growing emphasis on environmental as-
pects is also changing the face of the energy indus-
try. For example the European energy industry
must consider the already launched green certifi-
cates and be prepared to manage emissions trading
by year 2005. In some cases emissions trading will
influence energy production and production plan-
ning dramatically. There is a pressure to move into
more advanced and environmentally friendly
power generation technologies, and also to switch
to less harmful primary energy sources.
A similar deregulation development is taking
place on the gas market. Gas is an increasingly
popular alternative fuel at power plants due to
its environmental friendliness in relation to other
fossil fuels. Gas is also, for some end-users, a di-
rect substitute for electricity. Thus, variations in
the availability and price of gas affect both the pro-
duction of, and demand for, electricity.
Fig. 1 illustrates the new business environment
in energy planning. Due to the recent changes, en-
ergy companies must boost their production and
retail businesses to survive under the stronger
Technical
constraints
Production
plan
Power
Plants
Electricity
Variable
electricity price
Emission
Variable CO2 allowance price
Fig. 1. The business environment in energy planning.
competition on the volatile power market. To
adapt to the new business environment, energy
companies need financial and human resources
and new kinds of decision support tools. Electric-
ity traders need tools for quantifying the risks
and determining the use of different risk hedging
instruments. The retailers must manage customer
portfolios and dynamic pricing of contracts on
the market. The producers must optimise their
operations subject to volatile prices for electricity
and fuel (especially gas), and they must manage
the new challenges associated with CO2 allowances
and emission trading. This means that on a dereg-
ulated market, optimisation of the power genera-
tion should consider both the spot and forward
price of electricity and the CO2 allowances given
the physical, technical and power reserve con-
straints of power generation today.
The new decision-support tools must be more
versatile, accurate, and efficient than the present
generation. Versatility is needed in that it must
be easy to maintain the model and keep the model
parameters up to date. Accurate modelling of
new production technologies, such as gas tur-
bines (GT), combined heat and power genera-
tion (CHP), and combined steam and gas cycles
(CSG) may require non-convex models, which
Variable
fuel price
Fuel
mixture
Heat /
Steam
Variable load
 S. Makkonen, R. Lahdelma / European Journal of Operational Research 171 (2006) 1113–1126
makes the optimisation problems much more diffi-
cult than before. Optimisation must be faster than
before for two reasons. Firstly, rapid re-optimisa-
tion is required when the situation on the market
changes. Secondly, advanced computations, such
as risk analysis through stochastic simulation, re-
quires the solving of a large number of models rap-
idly (Makkonen and Lahdelma, 1998; Spinney and
Watkins, 1996).
In this paper, we focus on the production and
trade planning problem of a power company with
plants that require non-convex modelling. We for-
mulate the problem as a large mixed integer pro-
gramming (MIP) model. To make the model
manageable we compose the model hierarchically
from modular components. We present a generic
method of encoding different kinds of non-convex
power plants in the model. To speed up the optimi-
sation procedure, we decompose the problem into
hourly sub-problems and develop a customised
Branch-and-Bound algorithm for solving the sub-
problems efficiently. We demonstrate the use of
the model with a real-life application.
The non-convex energy optimisation model
introduced in this paper is an extension of the
Electricity and Heat Trade Optimisation (EHTO)
system first introduced by Lahdelma and Makko-
nen (1996). EHTO is embedded in the commercial
GENERIS energy information and decision sup-
port system, where the overall energy model is
composed and configured hierarchically from
graphical model components. The basic function-
ality of EHTO is to optimise the combined heat
and power acquisition for a given time horizon
based on forecasts for sales volumes and spot
market prices. The embedded Power Simplex opti-
misation code is used to solve the models
(Lahdelma and Hakonen, 2003). EHTO has been
used for analysing the risks of electricity trade on
the liberated market through stochastic simulation
(Makkonen and Lahdelma, 1998), for analysing
how various old and new types of electricity con-
tracts can be used in cooperation (Makkonen
and Lahdelma, 2001), and for multicriteria deci-
sion support on the deregulated energy market
(Makkonen et al., 2003). GENERIS has been
developed by Process Vision Ltd, and it is cur-
rently in use at more than 50 utilities in seven
1115
European countries. The non-convex optimisation
model introduced in this paper has been installed
at one medium size power company in Finland.
This paper is organized as follows. In Section 2,
we present the GENERIS energy information sys-
tem. In Section 3, we present how convex power
plant models are treated in EHTO. In Section 4,
we extend the EHTO model to handle non-convex
power plant models and show how the model is
solved by using an efficient tailored Branch-and-
Bound algorithm. In Section 5, we demonstrate
the use of the model in a real-life case and analyse
the system performance.
2. The GENERIS energy information system
2.1. Overall system architecture
GENERIS is a commercial energy information
and decision support system for different kinds of
participants in the deregulated electricity market:
grid operators, electricity traders, retailers, net-
work operators and producers. The system in-
cludes a configurable set of tools for the different
participants. In the case of a producer or trader,
the application set contains an on-line measure-
ment data management system, a trade support
application, a contract and portfolio management
application, a forecasting model for energy de-
mand, monitoring and reporting applications,
business-to-business and in-house communication
modules (EDIEL, ETSO ESS, etc.) and the EHTO
optimisation application.
A difficult practical problem in a real-life deci-
sion support system is to guarantee the integrity
and availability of reliable data. In GENERIS,
this problem is solved through an overall energy
data model that connects the different tools to-
gether and provides centralised data validation
and management services. This means that the dif-
ferent applications, such as the EHTO Optimiser,
can concentrate on their specific tasks.
2.2. The EHTO optimiser
The EHTO Optimiser is suitable for a wide
range of different optimisation and planning tasks
1116 S. Makkonen, R. Lahdelma / European Journal of Operational Research 171 (2006) 1113–1126

starting from operative short-term optimisation
in real-time and extending to strategic long-term
planning and risk analysis models based on sce-
nario techniques and stochastic simulation. The
EHTO Optimiser can be used for planning the
optimal energy acquisitions and sales for a given
planning horizon from 1 hour up to several years.
The basic functionality of EHTO is to optimise
the combined heat and power acquisition for a
given time horizon based on forecasts for sales
volumes and spot market prices. The model
provides the optimal production and trading plan
for electricity and heat. The objective function is to
maximize the difference between sales income and
energy procurement costs. EHTO can handle both
fixed sales based on heat and electricity load fore-
casts and open sales to the market based on price
forecasts. The procurement costs include purchase
costs and production costs. The production costs
may depend on fuel prices, electricity spot market
price, outdoor temperature, and many other
parameters. Several generation technologies
including industrial power plants, co-generation
plants and combined district heat production
plants are supported. The power plants can also
have multi-fuel options, including fuels whose
price varies hourly.
The overall energy optimisation model is con-
figured graphically from predefined model compo-
nents (Fig. 2). The system can contain three kinds
of supply and demand components: power compo-
nents, heat components and CHP components.
According to its type, each supply or demand com-
ponent is connected through a contract to a power
balance component, a heat balance component, or
both. The supply side components include different
kinds of short and long-term purchase contracts,
and various production facilities, such as hydro
power plants, condensing power plants, district
heating stations, and different types of CHP
plants. The demand side components include var-
ious kinds of open and fixed sales contracts with
different types of customers or customer groups.
There is also a model component for the spot mar-
ket, which acts simultaneously as a supply and
demand component.

Fig. 2. Graphical configuration of the GENERIS EHTO energy management model. Power components are dark, heat components
are light, and CHP components are two-coloured. The model contains five production plants (squares), a heat and a power balance
(rectangles), contract nodes (circles) and demand nodes (triangles).
 S. Makkonen, R. Lahdelma / European Journal of Operational Research 171 (2006) 1113–1126
3. The energy management model
3.1. The overall energy management model
The EHTO system generates the overall energy
management model automatically based on the
graphical configuration (Fig. 2) and compo-
nent-specific settings. The model is composed of
subsystems u 2 U, which correspond to the vari-
able supply and demand side components. The
model is specified for a sequence of hours t 2 T
that form the planning horizon. The resulting
model is formulated as
X present in the model. In the simplest case with
min C u ðxu Þ
u2U


t
Pt
s:t: Hx ¼ t
; t 2 T;
Q require solving the hourly models repetitively with
xu 2 X u ; u 2 U :
Here, x is the vector of all decision variables, xu is
the vector of variables related to component u, and
xt is the vector of variables related to hour t. The
objective function is formulated as minimisation
the sum of subsystem-specific net cost functions
Cu(xu). In this representation possible demand-side
(sales) components will contribute to the objective
function with a negative cost. The supply and de-
mand components are connected to common
power and heat balances through hourly balance
constraints t 2 T. The balance constraints are rep-
resented by a time-invariant technology and trans-
mission matrix H and forecasts Pt,Qt for the net
demand of power and heat. The subsystem-specific
constraints are represented by the sets Xu. Both the
constraints Xu and objective function terms Cu(xu)
may contain dynamic dependencies. Examples of
dynamic constraints are the storage constraints
for a hydro power and the energy package con-
straints in long-term power contracts. Examples
of dynamic cost function terms are the start-up
and shut-down costs for thermal power plants.
3.2. Decomposition into hourly models
Using various decomposition and co-ordination
techniques, the overall energy management model
can be decomposed into hourly models
1117
X
min C tu ðxtu Þ
u2U


Pt ð2Þ
s:t: Hxt ¼ ;
Qt
xtu 2 X tu ; u 2 U:
Here, the subsystem-specific objective functions
terms have been decomposed into hourly terms
C tu ðxtu Þ and the subsystem-specific constraints have
been decomposed into hourly constraints repre-
sented by the sets X tu .
The applicable decomposition techniques de-
pend on what kind of dynamic dependencies are
no dynamic dependencies, each hourly model is
solved once in sequence. When dynamic dependen-
ð1Þ
cies are present, the decomposition algorithm may
different parameters. Suitable techniques include
e.g. dynamic programming, Lagrangian decompo-
sition, Dantzig-Wolfe decomposition, BendersÕ
decomposition, and various heuristic techniques.
The interested reader could refer, for example to
Baldick (1995), Dantzig (1963), Guan and Luh
(1992), Guan et al. (1995), Lahdelma and Makko-
nen (1996, 2001), Lahdelma and Ruuth (1989,
1993), Lautala et al. (1992), and Wang et al.
(1995).
The hourly model (2) consists of submodels min
C tu ðxtu Þ subject to xtu 2 X tu that are combined to-
gether by linear constraints. The standard EHTO
optimiser assumes that the hourly submodels are
convex for each component. Convexity of a sub-
model means that X tu is a convex set and C tu ðxtu Þ
is a convex function of xtu 2 X tu . The convexity
assumption is used in EHTO to speed up the opti-
misation of the hourly models dramatically.
Firstly, because the submodels are convex, then
the hourly model (2) is also convex. This means
that it is possible to use efficient convex optimisa-
tion techniques for solving (2) instead of much
slower non-convex techniques. Secondly, if all
the submodels are linear programming (LP) prob-
lems, then (2) is also an LP problem. Solving LP
problems is, in general, much more efficient than
solving general convex problems of roughly the
same size. As we will show next, it is possible to
represent convex power plant and trade contract
1118 S. Makkonen, R. Lahdelma / European Journal of Operational Research 171 (2006) 1113–1126

models as compact LP models with good accuracy.
Thirdly, the resulting LP model has a special struc-
ture which can be utilized for solving the problem
much more efficiently than by using any generic
LP algorithms.
3.3. Convex power plant modelling
As illustrated in Fig. 3, the hourly power pro-
duction P tu and heat production Qtu of a CHP plant
must be in the characteristic operation area X tu ,
ðP tu ; Qtu Þ 2 X tu :
Assuming that the area is convex and that the
operating costs C tu ¼ C tu ðP tu ; Qtu Þ are a convex func-
tion of power and heat production, we can repre-
sent the characteristic operating area of the CHP
plant as a convex combination of extreme charac-
teristic points ðctj ; ptj ; qtj Þ through
X hourly fuel price Ct according to
C tu ¼ ctj xtj ;
j2J u
X
P tu ¼ ptj xtj ;
j2J u
X may contain separate power and heat components.
Qtu ¼ qtj xtj ;
X
j2J u
xtj ¼ 1;
j2J u
xtj P 0; j 2 J u;
where Ju is the index set of variables associated
with plant u. The minimum cost function of the
plant is then the lower envelope of the convex
polytope defined by (4). With a sufficiently dense
Q (c3,p 3,q 3)
(c4,p 4,q 4)
(c2,p 2,q 2)
(c5,p 5,q 5)
(c6,p 6,q 6)
(c1,p 1,q 1)
Fig. 3. Feasible operating area of a CHP plant.
set of characteristic points, the above formulation
approximates any convex cost function with arbi-
trarily good precision. In practice, the characteris-
tic points can either be determined empirically
(based on test runs) or calculated based on an ana-
lytical model. In either case, the number of points
will be reasonably small.
This formulation allows the shape of the char-
acteristic to change hourly, but assumes that the
same number of points jJuj are used for each hour.
If a plant needs fewer points at some hours, extra
points can be effectively disabled by fixing those xtj
ð3Þ to zero. It is typical that the number of character-
istic points and their (p, q)-coordinates remain
fixed from hour to hour, but due variable fuel
prices, the c-coordinate varies from hour to hour.
In such cases it is most convenient to represent
the characteristics of the power plant as (r, p, q)
coordinates, where r is the fuel consumption. The
c-coordinate is computed from r based on the
ctj ¼ C t rtj : ð5Þ
In addition to CHP plants, the energy model
ð4Þ Such components include condensing power plants,
hydropower, heat plants, and various purchase and
sales contracts for heat and power. All these can be
modelled as special cases of the convex CHP plant
model (4) with either qtj ¼ 0 (in power components)
or ptj ¼ 0 (in heat components).
Substituting convex models (4) for each compo-
nent into (2) gives an LP model with a special
structure. The EHTO optimiser contains an imp-
lementation of the specialised Power Simplex
algorithm for solving such models efficiently.
According to Lahdelma and Hakonen (2003)
Power Simplex solves real-life problems 20–190
times faster than the tabular simplex code by Flan-
nery et al. (1988) and 20–100 times faster than the
efficient sparse simplex code by Lahdelma et al.
(1986). The Power Simplex algorithm can only
solve problems that contain one heat and one
power balance as in (1) and (2). Since heat cannot
be transported over long distances, Power Simplex
P applies only for local CHP planning. Problems
with multiple heat balances can be solved with
comparable efficiency using the Extended Power
 S. Makkonen, R. Lahdelma / European Journal of Operational Research 171 (2006) 1113–1126
Simplex algorithm by Rong et al. (2005) and tri-
generation problems using the Tri-Commodity
Simplex algorithm by Rong and Lahdelma (2005).
4. Non-convex power plant modelling
There are situations where the convexity of a
power plant cannot be assumed. If the marginal
efficiency of the power plant is an increasing func-
tion of p or q, this results in a non-convex charac-
teristic. It is also possible that the operating area in
the (p, q) plane is non-convex. These situations are
common with advanced production techniques,
such as in backpressure plants with condensing
and auxiliary cooling options, in gas turbines,
and in combined gas and steam cycles. Non-con-
vexity can also result e.g. from a fuel constraint
that requires a more expensive fuel to be used be-
fore a cheaper one. A complex power plant can
also have a number of alternative operating modes
that shift some or all of the characteristic points.
This makes the characteristic non-continuous
(and thus non-convex).
Fig. 4. Non-convex characteristic of a backpressure plant.
1119
We next show how to extend the convex energy
system model to incorporate non-convex power
plant models and how to solve the non-convex
model efficiently.
4.1. Defining non-convex CHP plants
A well-known technique to handle non-convex
models is to divide the model into convex submod-
els and to encode these submodels as alternative
model components. Fig. 4 illustrates the character-
istic operating area of a CHP plant consisting of
one boiler and a backpressure turbine with op-
tional reduction bypass, condensing operation
and auxiliary cooling. The characteristic consists
of 9 points. The fuel consumption at each (p, q)
point is specified through two consumption rates,
rp for electricity and rq for heat as
r j ¼ r p p j þ r q qj : ð6Þ
A single combined consumption ratio would of
course be sufficient for specifying the fuel con-
sumption. Separate ratios for power and heat are
1120 S. Makkonen, R. Lahdelma / European Journal of Operational Research 171 (2006) 1113–1126

Table 1 Index sets

Allocation of characteristic points to convex sub-areas U set of components (cogeneration plants,
Area P1 P2 P3 P4 P5 P6 P7 P8 P9 trade contracts, demand side management
A1 1 1 1 1 1 components)
A2 1 1 1 1 1 U* set of non-convex plants (i.e., plants with
A3 1 1 1 1 more than one area)
A characteristic areas of all components
given in order to determine how the production Au characteristic areas of component u
costs should be allocated for power and heat after Aj characteristic areas that contain point j
the optimisation. J index set of characteristic points in all
The characteristic area consists of different sub- components
areas. The line between points 1 and 2 is the back- Ju index set of characteristic points of com-
pressure line where the consumption rates are ponent u
rather good. If more heat is needed, it is possible
to open a reduction valve and let some of the high Parameters
pressure steam bypass the turbine. This brings the cj production cost at characteristic point
operation towards points 8 and 9 with good effi- j2J
ciency. More power can be extracted from the tur- cp± penalty for slack or surplus power
bine by moving into the condensing area, towards cq± penalty for slack or surplus heat
point 3 with a much higher consumption ratio and pj power generation at characteristic point
consequently lower marginal efficiency. Finally, if j2J
even more power is needed, it is possible to start qj heat generation at characteristic point
the auxiliary cooling, which means moving to- j2J
wards points 4, 5, 6, and 7.
The characteristic surface for the CHP plant is
Decision variables
not convex. This can be detected easily by comput-
xj variable associated to characteristic point
ing the angles between adjacent triangular facets.
j2J
Concave angles appear along line segments 1–3
xp± slack or surplus variable for power
and 2–3. Therefore it is necessary to divide the area
xq± slack or surplus variable for heat
into convex sub-areas. The first convex sub-area
ya zero-one variable determining if area a is
A1 is formed by the combined backpressure, con-
in use (a 2 Au, u 2 U*)
densing and reduction area (1,8,9,2,3). The border
line of the remaining auxiliary cooling area is non-
convex at point 3. Thus it must be split into two
4.3. The non-convex hourly model
sub-areas, A2 = (1, 3, 6, 5, 4) and A3 = (2, 7, 6, 3).
A compact way to represent this subdivision is to
The non-convex hourly model is summarised in
indicate for each characteristic point to which con-
Eqs. (7)–(15).
vex sub-areas it belongs as shown in Table 1. An X
advantage with this representation is that it min cj xj þ cp
xp
þ cpþ xpþ
is not necessary to repeat common border points j2J
between two or more sub-areas. þ cq
xq
þ cqþ xqþ ð7Þ
X
4.2. Notation s:t: pj xj þ xp

xpþ ¼ P ; ð8Þ
j2J
X
Next, we formalize the hourly non-convex qj xj þ xq

xqþ ¼ Q; ð9Þ
j2J
power plant model. To make the notation simpler, X
we omit the superscript t from all future formulas. xj ¼ 1; u 2 U; ð10Þ
We use the following notation: j2J u
 S. Makkonen, R. Lahdelma / European Journal of Operational Research 171 (2006) 1113–1126
xj P 0; j 2 J;
xp
; xq
; xpþ ; xqþ P 0;
X ing ya variables are zeroes (i.e. their sum is zero).
xj 6 ya; j 2 J u; u 2 U ;
a2Aj
X

y a ¼ 1; u2U ;
a2Au
y a 2 f0; 1g; a 2 Au ; u 2 U :
The objective (7) minimises the net acquisition
costs for power and heat. The net acquisition costs
include production costs for physical plant com-
ponents, purchase costs for trade components,
income (negative costs) from possible demand-
side-management components, and penalties for
slack and surplus energy. Eqs. (8) and (9) are the
hourly balance constraints for power and heat,
correspondingly. Non-negative slack and surplus
variables (12) are included in the balance con-
straints to allow the supply to differ from the
demand at given (penalty) cost. For each compo-
nent u the net cost and the power and heat produc-
tion is expressed as a convex combination of the
cost at characteristic points (cj, pj, qj), j 2 Ju. The
convex combination is encoded for each compo-
nent by a set of xj variables, whose sum is one
(10) and that are non-negative (11). The xj vari-
ables act as interpolation coefficients in the objec-
tive function and the balance constraints.
The Eqs. (7)–(12) form the convex Power Sim-
plex formulation of the model (Lahdelma and
Hakonen, 2003). This model is sufficient when all
model components are convex. However, it allows
running non-convex components in the area be-
tween the convex sub-areas, which is physically
impossible.
To handle non-convex components correctly,
the model is augmented with constraints that disal-
low plants to operate between two or more areas.
This is implemented through zero-one variables ya
for each area a 2 Au in each non-convex compo-
nent u 2 U*. The ya variable equals one when
the corresponding area is used and zero otherwise.
Constraints (14) force exactly one area per compo-
nent into use. Constraints (13) disallow operation
in other areas or between areas by forcing xj-vari-
ables belonging to disallowed areas to zero. It
should be observed that each characteristic point
1121
ð11Þ may belong to several areas. For this reason an
xj-variable is forced to zero only if all correspond-
ð12Þ
ð13Þ
4.4. Solving hourly non-convex model
ð14Þ
The non-convex model (7)–(15) can be solved as
a general mixed integer programming (MIP) prob-
ð15Þ
lem. The most common technique to solve MIP
problems is to apply the Branch-and-Bound (B &
B) algorithm. The B & B algorithm is based on a
best-first tree search. Each node in the search tree
consists of an LP problem that is formed as a lin-
ear relaxation of a corresponding MIP problem.
The initial (root) node is the LP relaxation of the
original MIP problem and it is formed simply by
ignoring the non-convex constraints (15). The
main loop of the B & B algorithm manages the
search tree, keeps track of the so far best MIP
solution and chooses, in turn, the most promising
unexplored leaf node to solve. Solving an LP prob-
lem in a node has three possible outcomes:
1. The node is LP-infeasible. This implies that
also the corresponding non-convex problem is
infeasible.
2. The node is LP-optimal, but MIP-infeasible.
This means that some of the non-convex con-
straints (15) are not satisfied, i.e., at least some
0/1 variable ya has a fractional value.
3. The node is LP-optimal and MIP-feasible. This
means that the non-convex constraints (15) are
(coincidentally) also satisfied.
Case 1 means a dead-end in the search tree. No
additional search from this node is needed. In par-
ticular, if the root node is LP-infeasible, then the
original MIP problem is infeasible.
Case 2 leads into the branch step of the algo-
rithm. If the solution of the current node is better
than the best MIP solution so far, it is necessary to
continue the search from this node. In generic B &
B implementations two child nodes are created
and inserted to the search tree; one with the addi-
tional LP constraint ya = 0 and another one with
ya = 1. Thus, a binary search tree is formed, and
the maximum depth of the tree equals the number
of 0/1 variables.
1122 S. Makkonen, R. Lahdelma / European Journal of Operational Research 171 (2006) 1113–1126
In case 3, if the new solution is better than the
currently best MIP solution, it replaces the best
MIP solution. Then the search tree is also pruned,
i.e., nodes whose solutions are not better than the
new solution are removed. The solution of a child
node cannot be better than the solution of the par-
ent node, because more and more constraints are
added deeper in the tree. Thus, it is not worth
looking for better solutions from nodes where
the LP solution is not better than the currently best
MIP solution.
After the tree has been fully explored, the
best found MIP solution is the optimum to
the original MIP problem. If no MIP solution
has been found, the original MIP problem is
infeasible.
To utilize the special structure of the problem,
we have implemented a customised B & B algo-
rithm. The algorithm differs from the generic B
& B algorithm in three aspects:
• The 0/1 variables and associated constraints
(13)–(15) are treated implicitly. This means
that MIP-infeasibility is determined directly
based on the xj variables. MIP-infeasibility
BBOptimise(r)
best_node:= NULL;
node_heap:= NULL;
LP_Optimise(r);
if LP_Optimal(r)
if MIP_Feasible(r)
return r;
else
node_heap.Insert(r);
end if
end if
while not node_heap.Empty() do
node:= node_heap.GetFirst();
u:= InfeasiblePlant(node);
for a in u.Areas do
MakeChild(node,u,a);
end for
end while
return best_node;
end BBOptimise
is caused by plants that are operating
between two or more areas. Therefore the
LP relaxation contains only the constraints
(7)–(12) and the additional constraints in
the branch step are handled by fixing a sel-
ection of the xj variables to zero based on
(13).
• The branch step is not implemented based on a
single infeasible 0/1 variable, but based on an
entire plant u. Instead of forming two child
nodes, multiple child nodes are formed, one
for each convex area a 2 Au.
• In generic implementations of B & B, the
solution of LP models is normally delayed,
because solving LP models is computation-
ally quite expensive. However, the Power
Simplex algorithm can solve the child
nodes extremely efficiently by reusing the old
basic solution of the parent node. Therefore,
we can solve the LP models associated with
new nodes immediately when the nodes are
created.
The customised B & B algorithm is summarized
in the following pseudo-code.
// r is root node
// so far best MIP solution
// leaf nodes of tree to be explored
// optimise LP problem
// LP relaxation solves MIP problem
// insert r into heap
// remove and return first from heap
// u is an infeasible plant
// make a child for each area
// create & solve child, test case 1,2,3
// optimal MIP solution or NULL
 S. Makkonen, R. Lahdelma / European Journal of Operational Research 171 (2006) 1113–1126 1123

Node 0
Plant 1 is
MIP-infeasible

Branch on plant 1

area 1 enabled area k1 enabled

area 2 enabled

Node 1 Node 2 Node k1

Plant 2 is
MIP-infeasible LP-Infeasible
... Plant 3 is
MIP-infeasible

Branch on plant 2 Branch on plant 3

area 1 enabled area k2 enabled area 1 enabled area k3 enabled

area 2 enabled area 2 enabled

Node k1+1 Node k1+2 ... Node k1+k2 Node k1+k2+1 Node k1+k2+2 ... Node k1+k2+k3
Plant 3 is Plant 2 is
LP-infeasible MIP-feasible MIP-infeasible LP-infeasible MIP-feasible MIP-infeasible

Branch on plant 3 Branch on plant 2

Fig. 5. Sample search tree created by the customised B & B algorithm.

The MakeChild-routine creates a new LP prob- cogeneration plants consist of one backpressure
lem by adding the constraints xj = 0 for each (BP) plant (A) and two combined steam and gas
j 2 JunJa. This means that only the variables corre- cycle (CSG) plants (B, C). Reserve heating plants
sponding to area a of plant u are enabled. Make- also exist, but these are excluded from the optimi-
Child then solves the LP model starting from the sation model. TEB has also some hydro power
old basis of the parent node. Finally, MakeChild plants, which are similarly excluded from the
tests for the three cases listed above and acts model. The hydro power plants are not adjustable
accordingly. In case 2, if the objective function and therefore they do not affect the optimisation.
value is better than the so far best MIP solution, The overall model is illustrated in Fig. 2.
the new node is inserted into the heap ordered by The characteristic operating region of each
its objective function value. In case 3, if a better cogeneration plant is non-convex. Each non-con-
MIP solution is found, the best MIP solution is vex characteristic is modelled, as described in the
updated and the search tree is pruned. Fig. 5 illus- previous section, as a union of multiple convex
trates the search tree created by the customised B operating regions. Fig. 4 illustrates the non-linear
& B algorithm. The maximum depth of the tree characteristic for the backpressure plant A. The
equals the number of plants with non-convex characteristic of plant A contains 3 areas that are
characteristics. defined by 9 characteristic points (p, q, c). Table
2 summarizes the properties of the three cogenera-
tion plants (A, B, C).
5. Real-life example To demonstrate the performance of non-convex
power plant optimisation, we solved different vari-
In the following, we demonstrate non-convex ants of the model using a 730-hour (one month)
power plant modelling and optimisation with a
real-life application. The example is based on the
energy management model of the Tampere Elec- Table 2
tricity Board (TEB), which is the municipal power Properties of the cogeneration plants
company of the city of Tampere, Finland. TEB Plant Type Areas Characteristic points
produces both electricity for the national network A BP 3 9
and district heat for the city of Tampere. District B CSG 8 24
heat is produced at three regional cogeneration C CSG 14 30
Total 25 63
plants and two major district heating plants. The
1124 S. Makkonen, R. Lahdelma / European Journal of Operational Research 171 (2006) 1113–1126

planning horizon. The basic variant of the model
includes all three cogeneration plants (ABC), two
district heating plants, and the possibility to trade
electricity on the spot market. We formed three
smaller models (BC, AC, AB) by shutting down
each of the cogeneration plants in turn. Shutting
down a plant means that the optimisation system
eliminates the corresponding convexity constraint
and variables from the optimisation model. Table
3 summarises the dimensions of the four non-con-
vex test models. The table shows for each hourly
model the number of linear constraints (m), the
number of continuous variables (n), the number
of areas in the plant characteristics, and the num-
ber of different combinations of areas from differ-
ent plants. The number of areas would equal the
number of required zero-one variables if the model
were encoded as a regular MIP model. The num-
ber of combinations reflects better the complexity
of the model. In the worst case, the Branch-and-
Bound algorithm may have to enumerate through
all combinations and solve the corresponding LP
problems at the leaf nodes of the search tree, plus
those at the inner nodes.
To compare the complexity of non-convex
power plant modelling with convex modelling,
we also formed convex variants of the four test
models. This was done simply by merging the
areas in each characteristic. The convex test
Table 3
Dimensions of the test models
Model m n Areas Combinations
ABC 5 77 25 (3+8+14) 336
BC 4 67 22 (0+8+14) 112
AC 4 52 17 (3+0+14) 42
AB 4 46 11 (3+8+0) 24
models have the same number of constraints and
variables as their non-convex variants.
We solved the eight test models using the
GENERIS EHTO system in a 600 MHz Pentium
III PC under the Windows 2000 operating system.
To reduce the effect of random variations in CPU
time measurements, we solved each model five
times and computed the average CPU time. Table
4 shows the results on the test runs. For each
model, we have listed the number of Power Sim-
plex iterations and the CPU time in seconds. For
the non-convex models, we also listed the number
of Branch-and-Bound nodes where an LP problem
has been solved. The number of nodes excludes
nodes that have been eliminated in the bound
phase without calling Power Simplex to solve
them. The last column shows the ratios between
the CPU times for solving the non-convex and
convex models.
The results show that the non-convex models
take much more time to solve than their convex
variants. The largest model (ABC) takes 69 times
more CPU time to solve than the corresponding
convex model. With the smaller models the differ-
ence decreases, but is still significant. This is con-
sistent with the theoretically exponential time
complexity of the non-convex models with respect
to the number of non-convex power plants and
areas.
However, the solution times are still very rea-
sonable even with the largest non-convex model
where finding a solution took 10.5 seconds. Based
on the number of nodes per hour, we observed that
the Branch-and-Bound prunes the search tree very
well. In the ABC model with 336 potential combi-
nations, only 46 nodes need to be solved on aver-
age. In the BC model with 112 combinations, only
three nodes were solved on average. In the AC

Table 4
Results on solving the four 730-hour non-convex models and their convex variants
Model Non-convex Convex Comparison
Nodes Nodes/hour Iters Iters/node CPU(s) Iters CPU(s) CPU Ratio
ABC 33,215 45.5 49,896 1.50 10.5 42 0.152 69
BC 2046 2.8 3121 1.53 0.667 30 0.098 6.8
AC 730 1 66 0.09 0.128 66 0.080 1.6
AB 762 1.04 128 0.17 0.098 3 0.048 2.0
 S. Makkonen, R. Lahdelma / European Journal of Operational Research 171 (2006) 1113–1126
model all hourly problems and in AB, almost all
hourly problems were solved directly by their ini-
tial LP relaxation!
The solution time depends ultimately on the
number of simplex iterations that are required.
The number of iterations per solved LP model is
very small as indicated by the Iters/node column
in Table 3. A large share of the LP problems is
solved immediately by a restored and adjusted
old basis without any iteration.
6. Conclusions
Changes on the energy market, increasing envi-
ronmental awareness, and new energy production
technologies create a need for new kinds of deci-
sion-support tools for energy companies. Energy
companies need to be able to solve in real-time
more detailed and realistic models that are based
on reliable on-line information. In this paper, we
have presented a technique to model different
kinds of combined heat and power production
plants more accurately using non-convex optimi-
sation models. We have also demonstrated with a
real-life application, that non-convex optimisation
can be implemented very efficiently using suitable
decomposition techniques and customised embed-
ded optimisation algorithms.
The performance of the modelling and solution
technique is applicable to real-life needs. The
solution time of the optimisation method is linear
with respect to the length of the time horizon but
exponential with respect to the number of plants
and areas within plant characteristics. In real-
time operative use, the time horizon can be any-
thing from a few hours to several weeks. With
current PC-hardware, the presented concept was
proven fast enough for real-time operative use
in a real-life case with three non-convex cogenera-
tion plants containing a total of 25 areas. The
solution time for a 730-hour model with three
non-convex power plants was only 10.5 seconds
on a 600 MHz Pentium III. The system is also
suitable for long-term planning as a full year-
model can be solved in about two minutes. If
the model is applied in long-term risk analysis,
the annual model needs to be solved multiple
1125
times based on different scenarios. In such appli-
cations, the solution time may be several hours,
which is still feasible.
The exponential time complexity with respect to
the number of plants and areas sets practical limi-
tations on the proposed method. More sophisti-
cated search and pruning techniques in the
Branch-and-Bound algorithm would probably
allow solving somewhat larger problems with suf-
ficient speed. In much larger problems, it may be
necessary to apply heuristic and/or near-optimal
solution methods.
Future studies could consider modelling and
overall optimisation of fuel mixtures with con-
straints, e.g. annual maximum usage. The tech-
niques could also be used for modelling emission
limits and extended to consider the trade of emis-
sion certificates. Additionally, further research
could explore how the model can be better adapted
for evaluating different strategies in terms of multi-
ple uncertain criteria (Lahdelma et al., 2005; Mak-
konen et al., 2003).
Acknowledgements
We thank Ilhan Or, Kevin Doyle, Ender Gur-
gen and an anonymous referee for valuable com-
ments that have helped us to improve the paper.
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