GETSMART4.0

The Energy Trilemma

The goal of the Paris agreement: Reduce the carbon emissions from the energy system radically. If we could build the required capacity in time, we would risk frequent local blackouts when the sun doesn’t shine and the wind doesn’t blow. We could use batteries when there is less generation from renewables, but that would be prohibitively expensive.

With this, we would like our energy system to have three characteristics: 

1. Sustainable: we want to phase out fossil fuels and their emissions.
2. Affordable
3. Reliable: This is essential for our modern society.

These three goals form a trilemma because they are often at odds with each other. It is easy to design an affordable energy system if you disregard the other two goals. And it is still manageable if you want that system to rely on renewable energy sources, as long as you are willing to sacrifice reliability. However, doing all three at the same time is a great challenge. Decisions involve trade-offs - and they involve making the best possible use of available information and technologies.

Types of decisions in energy systems

1. Consideration: Thinking about the energy transition in the longer term means we need to think about the system we would like to have – and how we will get there.
   Decision: The relevant decisions from this long-term perspective are investment decisions. What do we build and where? 
2. Consideration: In the shorter term, we need to consider the system we actually have. How can we best use this system while balancing sustainability, affordability and reliability?
   Decision: That is primarily done using dispatch decisions: when do we use energy – and from which source? 

At the national or continental scale, where investment decisions could be about creating a hydrogen backbone or the closure of nuclear power plants. Dispatch decisions are primarily left to the markets in liberalized electrical power systems. Still, the transmission system operators play an essential part in adjusting the market dispatch if necessary, to ensure the grid’s reliability.

On the other hand, the same framework can be applied to local energy systems, down to the scale of your own home. The long-term decision problem then includes the option of investing in a home battery, whereas the operational dispatch problem can be about charging your electric vehicle during off-peak hours.

The two decision problems are not independent. Clearly, past investment decisions have influenced the operational decision problem, but that can be considered water under the bridge. Those decisions have already been made. More importantly, one cannot think about future investments without considering dispatch decisions. For example, if reliability considerations mean we should curtail the amount of wind power we use, it will affect the trade-offs for investment. As a result, investment problems always encapsulate operational dispatch problems.

How to formulate a decision problem?

There are two key elements to the formulation of a mathematical decision problem: 

1. Objective: Here, we define a quantity that is to be maximized or minimized. We might choose one of the three components of the energy trilemma, or we could try to balance them by placing them on the same footing. For example, if we assign a monetary value to reliability and carbon emissions, we can minimize the total costs. Whichever choice we make, in this setup we consider a decision optimal if it attains the best value of our objective, among all other possible options.
2. Constrains: Our freedom to select an optimal decision is constrained by the limits of our system. For example, we cannot produce more power than a generator is physically capable of producing. We cannot spend money we do not have without resorting to a more expensive loan. This category can also include limits we choose to impose, such as limits on CO2 emissions or limits that ensure the physical safety of maintenance workers. 

Together, the objective and the constraints make up the decision problem. Once it has been formulated precisely, we can try to solve it. That is, we try to identify the optimal decision.

Complexity in decision making

Finding that optimal decision may be easy, or difficult – that depends on the problem. However, in general, we can define a few factors that significantly influence problem complexity. These factors are

1. Timespan
   Decisions that only concern the short term are generally the simplest. At the other end of the scale, complexities stack up if we consider long-term plans or the impact that short-term decisions have on future decisions.
   
2. Scale
   This is the most obvious factor of the problem you are dealing with. In a national electricity network, there are many more possible actions and constraints to consider than for the case of a single home.
3. Uncertainty
   These could be uncertainties about the future – for example, related to the weather forecast – or uncertainties about the past and present – for example, if you are concerned about measurement errors. To deal with uncertainty: 

• In the simplest case, we simply ignore them!
• Doing one step better, we can define a range of scenarios and consider our decisions against each scenario.
• At the very complex end, we may even consider the knowledge that we can re-assess our decisions later and we have the so-called “multi-stage stochastic programming” framework – which tends to be very complex to solve.

Summary:

• The fundamental balancing act between sustainability, affordability and reliability when designing and operating energy systems is known as the Energy Trilemma. 
• In practice, these decision problems are often classified into investment – also known as planning – problems and operational problems, such as dispatch decisions. 
• These decision-making problems are mathematically stated in terms of their objective and constraints 
• The complexity of such problems is linked to the time span considered, the level of detail of the energy system and how we deal with uncertainty.