Managing Energy Storage in Microgrids: A Multistage Stochastic Programming Approach

A microgrid is a small-scale version of a centralized power grid that generates, distributes and regulates electricity flow to local entities using distributed generation and the main grid. Distributed energy storage systems can be used to mitigate adverse effects of intermittent renewable sources in a microgrid in which operators dynamically adjust electricity procurement and storage decisions in response to randomly-evolving demand, renewable supply and pricing information. We formulate a multistage stochastic programming (SP) model whose objective is to minimize the expected total energy costs incurred within a microgrid over a finite planning horizon. The model prescribes the amount of energy to procure, store and discharge in each decision stage of the horizon. However, for even a moderate number of stages, the model is computationally intractable; therefore, we customize the stochastic dual dynamic programming (SDDP) algorithm to obtain high-quality approximate solutions. Computation times and optimization gaps are significantly reduced by implementing a dynamic cut selection procedure and a lower bound improvement scheme within the SDDP framework. An extensive computational study reveals significant cost savings as compared to myopic and non-storage policies, as well as policies obtained using a two-stage SP model. The study also demonstrates the scalability of our solution procedure.