A production-inventory problem for an energy buy-back program

doi:10.1109/TASE.2006.886831

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	A production-inventory problem for an energy buy-back program
	Chen, Youhua (Frank); Fellow, Suresh P. Sethi ; Zhang, Hanqin
	2007-07-01
发表期刊	IEEE TRANSACTIONS ON AUTOMATION SCIENCE AND ENGINEERING
ISSN	1545-5955
卷号	4 期号:3 页码:395-406
摘要	This paper considers a production-inventory problem in which the manufacturer participates in an energy buy-back program, which offers probabilistic opportunities with rewards for not using electricity. That is, the manufacturer will get paid for stopping production to save on electricity. The amount rewarded in a period will depend on the electricity market condition at that time. The market condition in any given period is represented by M + 1 states: normal (i.e., nonpeak), peak type 1,..., peak type M, and the reward amount in the period will be 0, K-1,..., and Km, respectively. The occurrence of each state in a period is dictated by a known probability distribution. The objective is to determine from the manufacturer's perspective, whether to take such an offer when it arises. Under a mild assumption, we show that in the normal market condition, the production decision is partly a base-stock policy, whereas under peak type m condition, the manufacturer, upon accepting the offer, produces according to an (s(m), S) policy, where m = 1,..., M. The numerical experiment demonstrates that the cost savings due to buy-backs can be substantial. It also shows that the always-participating strategy (i.e., the firm shuts down production whenever the buy-back program is activated) can perform much worse than the never-participating strategy. Note to Practitioners-Energy buy-back programs have grown in popularity in the last decade. For example, Wisconsin Electric (WE) introduced several so-called energy buy-back programs seven years ago, one of which is referred as power market incentives (PMI). Under the PMI program, WE pays participating customers a premium for voluntarily reducing their electricity use when it is activated. Several interesting issues emerge from this situation. The first is whether, from a manufacturing firm's viewpoint, it is worth shutting down a production system to participate in the program at a particular time during a peak period (when the incentive program is activated), and in which part (portion) of the peak period the firm should participate. The second issue is how the firm should dynamically decide on its production policy over time in the presence of such an incentive program. In this paper, we provide simple models to give insights into the nature of these problems.
关键词	deregulation in the electricity market dynamic programming production-inventory model (s, S) policy
DOI	10.1109/TASE.2006.886831
语种	英语
WOS研究方向	Automation & Control Systems
WOS类目	Automation & Control Systems
WOS记录号	WOS:000247832500009
出版者	IEEE-INST ELECTRICAL ELECTRONICS ENGINEERS INC
引用统计
文献类型	期刊论文
条目标识符	http://ir.amss.ac.cn/handle/2S8OKBNM/4617
专题	应用数学研究所
通讯作者	Chen, Youhua (Frank)
作者单位	1.Chinese Univ Hong Kong, Dept Syst Engn & Engn Management, Hong Kong, Hong Kong, Peoples R China 2.Univ Texas, Sch Management, Richardson, TX 75083 USA 3.Chinese Acad Sci, Acad Math & Syst Sci, Beijing 10083, Peoples R China
推荐引用方式 GB/T 7714	Chen, Youhua ,Fellow, Suresh P. Sethi,Zhang, Hanqin. A production-inventory problem for an energy buy-back program[J]. IEEE TRANSACTIONS ON AUTOMATION SCIENCE AND ENGINEERING,2007,4(3):395-406.
APA	Chen, Youhua ,Fellow, Suresh P. Sethi,&Zhang, Hanqin.(2007).A production-inventory problem for an energy buy-back program.IEEE TRANSACTIONS ON AUTOMATION SCIENCE AND ENGINEERING,4(3),395-406.
MLA	Chen, Youhua ,et al."A production-inventory problem for an energy buy-back program".IEEE TRANSACTIONS ON AUTOMATION SCIENCE AND ENGINEERING 4.3(2007):395-406.