Sequencing Competitive Expansion Projects

Abstract

We develop a solution approach for finding the sequencing of a finite set of capacity expansion projects that minimizes total discounted operating and investment costs. Variable operating costs are specified through a general continuous-time function that requires projects to be competitive in a certain sense. This definition for operating costs allows the use of an optimization submodel, such as a multilocation distribution problem, to determine operating decisions. The general formulation includes several simple sequencing problems as special cases. The solution approach addresses a relaxed problem formulation that incorporates economic criteria for determining project timing decisions, and we show that a properly defined solution to the relaxed formulation solves the original problem. We also develop several refinements to the basic solution approach.

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