Multi-criteria decision support in the liberalized energy market

Abstract

The European energy market has faced a radical change during the last 10 years and the evolution will probably continue for several years. Liberalization of the electricity market, unbundling of vertically integrated businesses, scarcity of natural resources, and increasing emphasis on the environmental effects of the energy sector have created a new business environment, where complex, interacting decision problems must be solved in co-ordination. These decision problems involve a large number of variables, multiple criteria, and they are stochastic by nature. Efficient simulation and optimization methods are required to solve these problems. It is also important that the results on the different analyses can be presented to the decision-makers in a format that they can understand. In this paper, we focus on the strategic decision making of an electricity retailer operating in the liberalized market. We develop a decision support system based on stochastic simulation, optimization and multi-criteria analysis. We demonstrate the use of the system through a realistic case. Copyright © 2004 John Wiley & Sons, Ltd.