Modelling decentralized decision making in the energy sector

Large linear programming models, which have been widely used to determine the optimal structure of national energy systems, are based on the assumption that there is an absolutely centralized decision making process within the energy system. In this paper an attempt is made to match the real decision structure of a given energy system, by decomposing an LP energy model into smaller models, with the corresponding system decision centres. This is done by applying the 'transfer price' algorithm of Dantzing and Wolfe. The 'master' problem corresponds to the central planning unit, i.e. a Ministry of Energy, whereas the subproblems correspond to peripheral operating units, i.e. enterprises, usually state owned, which produce and distribute the energy carriers. The optimal plans of the peripheral units are submitted to the central unit, which through the mechanism of pricing of both common resources, inputs and energy services outputs, co-ordinates the overall planning of the energy system. An illustrative example is given referring to the Hellenic national energy system. The research reported is placed within a wider research endeavour, whose objectives and main line of work are also given.