Decomposition Methods for Dynamically Monotone Two-Time-Scale Stochastic Optimization Problems

Abstract

In energy management, it is common that strategic investment decisions (storage capacity, production units) are made at a slow time scale, whereas operational decisions (storage, production) are made at a fast time scale: for such problems, the total number of decision stages may be huge. In this paper, we consider multistage stochastic optimization problems with two time-scales, and we propose a time block decomposition scheme to address them numerically. More precisely, our approach relies on two assumptions. On the one hand, we suppose slow time scale stagewise independence of the noise process: the random variables that occur during a slow time scale interval are independent of those at another slow time scale interval. This makes it possible to use Dynamic Programming at the slow time scale. On the other hand, we suppose a dynamically monotone property for the problem under consideration, which makes it possible to obtain bounds. Then, we present two algorithmic methods to compute upper and lower bounds for slow time scale Bellman value functions. Both methods rely respectively on primal and dual decomposition of the Bellman equation applied at the slow time scale. We assess the methods tractability and validate their efficiency by solving a battery management problem where the fast time scale operational decisions have an impact on the storage current capacity, hence on the strategic decisions to renew the battery at the slow time scale.