Advantages of Stochastic Optimization as the cutting edge methodology for decision support systems
Traditional approaches to strategy and operations are not sufficient for today's competitive and uncertain market-place.
Linear programs (LPs) allow detailed modeling of market structures and physical or contractual constraints of generation and transmission systems, but are limited in modeling risk.
Simulation tools and statistical methods are well applied in analyzing uncertainty, but often miss fundamental market relationships and do not recommend a specific course of action.
The stochastic optimization approach brings together the strengths of LPs and simulation into a single unified platform, capturing multiple time frames and asset types. The optimization framework provides recommended decisions that maximize the value of the portfolio subject to various constraints and taking account of uncertainties. The framework explicitly models fundamental market relationships and integrates each power, fuel, and emissions book. Most importantly, this framework creates a system that allows managers to harness the expertise in each of these segmented areas into a single, unified decision strategy.