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An Integrated Distributed Generation Optimization

Model for Distribution System Planning
Walid El-Khattam, Student Member, IEEE, Y. G. Hegazy, Member, IEEE, and M. M. A. Salama, Fellow, IEEE

AbstractThis paper proposes a new integrated model for

solving the distribution system planning (DSP) problem by implementing distributed generation (DG) as an attractive option in
distribution utilities territories. The proposed model integrates a
comprehensive optimization model and planners experience to
achieve optimal sizing and siting of distributed generation. This
model aims to minimize DGs investment and operating costs,
total payments toward compensating for system losses along the
planning period, as well as different costs according to the available alternative scenarios. These scenarios vary from expanding
of an existing substation and adding new feeders to purchasing
power from an existing intertie to meet the load demand growth.
Binary decision variables are employed in the proposed optimization model to provide accurate planning decisions. The present
worth analysis of different scenarios is carried out to estimate the
feasibility of introducing DG as a key element in solving the DSP
problem.

T
TN
TU

Index TermsDistributed generation (DG), distribution system

planning (DSP), economic analysis.

NOMENCLATURE
BK

Backup distributed generation unit capacity (MVA).

Present worth factor.
Distributed generation investment cost (in dollars
per MVA).
Distributed generation operating cost (in dollars per
MVA).
Electricity market price (in dollars per
megawatthour).
Total feeder cost from to (in dollars).
Potential transformer in existing substation cost
(in dollars).
Intertie electricity market price as function of
the amount of imported power (in dollars per
megawatthour).
Load demand (MVA).
DISCOunt rate.
Bus indices.
Objective function (in dollars).
Total number of system load buses.
System power factor.
Power generated from distributed generation
(MVA).
Distributed generation capacity limit (MVA).

Manuscript received September 17, 2003; revised March 3, 2004. Paper no.
TPWRS-00540-2003.
The authors are with the Electrical and Computer Engineering Department, University of Waterloo, Waterloo, ON N2L 3G1, Canada (e-mail:
waselkha@engmail.uwaterloo.ca).
Digital Object Identifier 10.1109/TPWRS.2005.846114

Power flow in feeder connecting bus to (MVA).

Feeders thermal capacity limit from to (MVA).
Transformer
in substation dispatched power
(MVA).
Amount of power imported by the intertie (MVA).
Power purchased by the distribution utility (MVA).
Substation capacity limit (MVA).
Total number of systems existing substations.
Incremental time intervals (in years).
Horizon planning year (in years).
Total number of system buses.
Total number of substation transformers.
Bus voltage (in volts).
System nominal voltage (in volts).
Maximum permissible voltage drop (in volts).
Feeder segment impedance from bus to (in ).
Distributed generation binary decision variable.
Feeder to binary decision variable.
Transformer in substation binary decision variable.
Intertie binary decision variable as function of the
amount of purchased power.
I. INTRODUCTION

LECTRIC power system deregulation has affected the

electric system design, generation, reconfiguration, operation, and decision-making concepts. Electric utility distribution
companies (DISCOs) aim to improve their profits and minimize
the investment risk to meet the growth demands in their territories while keeping their customers bills affordable. DISCO
planners venture to implement new planning strategies for
their network in order to meet the load growth economically,
serve their customers with a reliable electricity supply, and
survive in the competitive electricity market [1]. These goals
can be achieved by introducing new alternatives for solving the
distribution system planning (DSP) problem in addition to the
traditional options.
Traditional utility DSP strategies are based on an established
rule-based experience. The load growth value is forecasted until
it reaches a predetermined threshold by the DISCO; then, a new
capacity must be added to the electric system. This new capacity is obtained by considering the addition of new substations
or expanding existing substations capacities and their associated new feeders or both of them [2][4]. The options for this
rule-based strategy are limited and valid only if the economic
status is not varying rapidly. However, if the economic variations are tremendous, this rule-based strategy must be readjusted

0885-8950/$20.00 2005 IEEE

EL-KHATTAM et al.: AN INTEGRATED DG OPTIMIZATION MODEL

to include nontraditional alternative capacitys investment options to address the varying economic environments [5]. Distributed generation (DG) is one of the new attractive alternative capacity options for DISCOs planning. DG reduces the
systems capital cost by deferring distribution facilities [6]. DG
reduces the power flow in the system, thus improving the system
voltage profile [7], [8], minimizing the system losses [7][10],
and relieving the heavy loaded feeders and extending the equipments lifetime [6].
This paper proposes the implementation of DISCO DG as an
economical attractive new tool for the DSP problem to make
use of its economical and operational benefits, solve the lacking
electric power supply problem, and meet the load growth
requirements with a reasonable price. The new integrated DSP
model with DG implementation aims to minimize DISCOs
capital investment and operating costs in new facility capacities
(substations, transformers, feeders, and DGs) as well as payments to be made toward DISCOs system loss compensation,
cost of DGs generated power, and cost of power purchased
from the main grid. The proposed model decides the necessary
new facilities sizing and siting as well as the required power to
be imported from the main grid through DISCOs substations
or an existing intertie to meet the demand in an optimal way.
The attractive feature of the proposed optimization model is
that it uses binary decision variables, thereby providing the optimal decisions without any need for rounding the solution. The
results of this model can be used to provide the new estimation
for billing DISCOs customers. Several comprehensive analysis
scenarios are discussed to cover the different possibilities that
can exist in DISCOs territories. The scenarios models are carried out to investigate the optimal economical DGs investment
feasibility based on the proposed new objective function and
its constraints.

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3)

Investing in DG as an alternative candidate option for

solving the DSP problem locally challenges all of the
above options under different scenarios without the
need for feeder upgrading.

A. Mathematical Model Formulation

The DISCOs cost is split into two main parts: investment
(fixed) cost and variable [operation and maintenance (O&M)]
cost. Fixed cost is a one-time cost that is spent during construction and installation and does not depend on intended loading
variation to be served after operation. It is called a Single
Budget Expense, which consists of construction, installation,
equipment, land, permits, site developing and preparation,
taxes, insurance, labor, and testing costs. A variable (running)
cost exists as the system is in service and depends mainly on
the loading required. It is the cost of fuel, electric system losses,
inspection, maintenance, and regular modification like parts
replacement, taxes, and insurance [11].
The presented total investment objective function is based on
the supply chain example model formulation. It aims to minimize the investment and operating costs of candidate local DGs,
payments toward purchasing the required extra power by the
DISCO, payments toward loss compensation services, as well as
the investment cost of other chosen new facilities for the given
two scenariosA and B.
The mathematical formulation is described in (1)(9). The objective function in (1) and (2) or (3) are minimized subject to variousconstraints,whichrangefromsystemtofacilitiesconstraints.
These operating constraints satisfy the electrical distribution network requirements as well as DG and other new facilities capacity
constraints. These constraints are described in detail in (4)(9).

II. NOVEL DISTRIBUTION SYSTEM PLANNING MODEL

This section presents the mathematical formulation for
DISCOs investment planning problem and DISCOs system
under study. It is considered that the DISCO is the owner and
operator of a distribution system that supplies electricity to its
customers. In addition, the existing substations have to be fully
utilized as much as possible to get the whole benefit from their
snuck capital costs. The proposed problem in this paper tackles
the problem of meeting the growth in the DISCOs demand.
The DISCO has the following alternatives to serve its demand
growth.
Scenario A: Purchasing the required extra power from
1)
the main grid and pumping it to its distribution network through its junction substations with the main
grid. This scenario might require expanding the existing substations by installing new transformers and
upgrading some existing feeders capacities if their
thermal capacities are violated.
2)
Scenario B: Purchasing the required extra power from
an existing intertie and delivering it to its distribution network territory. This scenario might require upgrading some existing DISCOs feeder capacities to
overcome the feeders overloading problem.

Cost of Scenario A or

Cost of Scenario B
(1)

Cost of Scenario A

(2)
Cost of Scenario B

(3)
where from [11],

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The DSP constraints:

1) Total Power Conservation: The summation of all incoming and outgoing power over the DISCOs feeders, taking
into consideration the DISCOs feeders losses and the power
supplied by DG, if it exists, should be equal to the total demand
at that bus.

1)

(4)
2) Distribution Feeders Thermal Capacity: The DISCOs
feeder has a capacity limit for the total power flow through it
during peak loads.
2)
(5)
3) Distribution Substations Capacity: The summation of
total power delivered by the substations transformers to the
DISCOs network must be within the substations capacity
limit.

(6)
4) Voltage Drop: The DISCO provides the predetermined
maximum permissible voltage drop limit [12].

(7)
5) DG Operation: The DGs generated power must be less
than the DGs capacity.

3)

The optimal new facilities investments can either be

both or one of the following:
a)
substation expansion through new transformers
and DISCOs feeders upgrading to higher capacity if it is mandatory;
b)
DG units sizing and siting at different DISCOs
buses. Initially, it is assumed by the model that
the DISCOs aggregated load buses are candidate DG locations, and each bus has a predetermined maximum number of DG units. By performing the optimization model, we get certain
load buses that require DGs investment (DG
siting) and the needed amount of power generated by DG (DG sizing).
The amount of additional power (more than the existing substations capacity, 40 MVA) that is required
to be purchased by the DISCO from the main grid to
meet the load demand and compensate for the network
losses. Purchasing power can be done through the expandable substation or from an existing intertie option.
The DGs running cost to provide the required additional power to the DISCOs network to meet its demand growth without purchasing power from the main
grid through an existing intertie or from the junction
substation that may require investing in its expansion.

B. Primary Distribution System Under Study

The existing primary distribution system under study is
shown in Fig. 1. It consists of one 132 kV/33 kV substation
of 40 MVA capacity (bus-9) to serve eight aggregated loads
(33 kV/11 kV service transformers at buses 18) at normal
operation. These aggregated load buses are assumed to be connected to the natural gas network, and therefore, natural gas is
available to drive candidate DGs at these buses. However, there
is a forecasted load growth by approximately 28% (51.1 MVA)
that is required to be served at the horizon year (four years).
The system has four existing primary distribution feeders with
a thermal capacity of 12 MVA [4].
C. Cost Data

(8)
6) Interties Delivery Power Capacity Limit: The interties
delivery power cost rates are predetermined by the DISCO and
the other identitys contract. The rate of charge depends on the
amount of power purchased by the DISCO.
MVA
MVA
MVA
MVA

(9)

This model is formulated as mixed-integer-nonlinear on

GAMS [13] using binary decision variables, which gives accurate decisions, where unity or zero decision variables mean
invest or do not, respectively. The model provides different
planning information as follows.

Based on the end of year 2002 market indexes (in US dollars),

a base price of $70/MWh is considered as the electricity market
price for purchasing power at peak demand by the DISCO from
the main grid. The natural gas generator sets investment cost is
assumed to be 0.5 M$/MVA. The candidate DGs have sizes of
multiples of 1 MVA at a generated electricity price of $50/MWh.
At each selected DG bus, an extra DG unit (1 MVA) is installed
as backup in case of any DG failure and for maintenance periods. There is an assumed maximum limit of the investing in
DG capacities at each bus (4 DG units of 4 MVA total capacity
plus one DG unit as backup) so that the maximum candidate
DGs capacity on a DISCOs primary distribution feeder is approximately 30% of its peak demand loading. This limit is used
to keep the concept of dispersed generation not a centralized
plant and take the most benefit from the existing substation with
its sunk cost. The paper proposes to use a modular of a small
size natural gas generator set to avoid any anticipated land availability problems. These DG units have limited dimensions that

EL-KHATTAM et al.: AN INTEGRATED DG OPTIMIZATION MODEL

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Fig. 1. Primary distribution system under study.

can fit in relatively small areas [14], [15]. The systems existing
substation capacity is 40 MVA, which is capable of serving the
normal operation load. The total load growth to be served is
51.1 MVA at the horizon year. Two three-phase 10-MVA potential transformers can be installed for expanding the existing
substation, each of 0.2 M$. The cost of upgrading the existing
primary distribution feeder with another of higher capacity is
0.15 M$/km [12]. All existing equipment and feeders costs are
entered as zeroes for the optimization model. The system power
factor is set to 0.9. The DISCOunt rate is taken as 12.5%.
It is important to mention that DG siting has some environmental restrictions. Therefore, this paper adopted the use of the
natural gas generator set since this technology is known to be
environmentally friendly and produces the least pollution compared to other fossil fuels DGs [14], [15].
III. ANALYSIS AND RESULTS
The main two scenarios discussed in Section III are carried
out to evaluate the feasibility of implementing DG investment
in DSP versus other traditional planning options. The new facility investment is mandatory in order to serve the DISCOs
load growth in its territory. Each one of the main two scenarios
is divided further into two cases. In the first case, there is no
need for DISCOs feeders upgrading. On the other hand, in the
second case, the DISCOs feeders upgrading is essential as the
power flow exceeds the feeders thermal capacity. These scenarios are discussed in detail as follows.
A. Scenario A: DG versus Substation Expansion
If there is difficulty in finding suitable land for building new
substations, existence of rapid economic variation that may lead
to high investment risks, or a long time government regulatory
permission is required, then expanding an existing substation
is the available option. In this scenario, two candidate transformers are used in the optimization model for investigating the
existing substation expansion option. During the proposed scenarios, the existing DISCOs feeder thermal capacities may be
violated, and therefore, the analysis is done under the following
two conditions.

1) DISCOs Feeder Thermal Capacity Is Adequate: If the

substation expansion is the only available option, the proposed
optimization model (1) and (2), constrained by (4)(7), is carried out by setting the candidate DG capacity decisions to zero.
The model will provide the optimal total new transformers substation investment cost and their power transferred from the
grid to the DISCOs network, which represents the additional
amount of power purchased by the DISCO to meet its peak
demand growth. Also, it provides the total payments toward
compensating the DISCOs network losses based on the present
worth value calculations.
The first column in Table I shows the output solution for substation expansion option only by investing in two transformers.
The output indicates that one transformer is fully utilized, and
the other has 44% usage, which provides additional room for
more power to be served later if required.
However, by comparing the option of DG investment with
substation expansion versus expanding the substation only,
better planning decisions are obtained. The proposed optimization model (1) and (2) calculation is carried out, taking
into consideration the electrical constraints (4)(8) and setting
a multiple DG units of a maximum candidate DG operating
capacity limit of 4 and 1 MVA as backup at all DISCOs demand buses. The output shown in the second column of Table I
provides one transformer for expanding the existing substation
and three groups of DGs; each group contains 4 MVA operating
capacity, and 1 MVA as backup at DISCOs buses 2, 6, and 8 is
required. Therefore, we get the optimal DGs sizing and siting
with a lower total planning cost than in the case of expanding
the substation alone by 12.4%.
It is noted that the obtained optimal solution introduces an
investment in one transformer to provide only 0.7328 MVA,
which is 7% of its capacity, which is not practical. Therefore,
a planner experience decision must take place by setting the
transformer investment decision to zero. The third column in
Table I shows the final optimal planning decision for investing
only in DGs and no substation expansion with a total planning
cost less than expanding the substation alone by 10.5%. The optimal DGs sizing and siting at DISCOs buses consists of two
groups of DGs. In the first group to be installed at buses 2 and

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TABLE I
DG VERSUS SUBSTATION EXPANSION

8, each has 4-MVA DG operating capacity and 1-MVA backup,

while the other group consists of 3-MVA DG operating capacity
and 1-MVA backup at buses 4 and 6.
The optimization model results for Scenario A are shown in
Table I. Note that the base market price for purchasing power at
peak demand from the main grid is assumed to be 70 $/MWh;
however, by investing in new facilities and compensating for
the losses, more money is spent, and it should be added on the
customer billing. By investing in DG rather than expanding the
existing substation, the DISCO can minimize its total planning
cost and reduce its customers bills as well by a value of 2.306
$/MWh. This adds more social economical benefit to the use of
DGs as a new attractive tool in solving the DSP problem, rather
than the traditional planning options. In this way, the DISCO
can keep its customers and reduce the risk of losing them by
contracting with other DISCOs [1].
Examining the implementation of DG as a key element in the
DSP is not only a matter of minimizing the total planning cost
but also has social economic benefits as discussed above and
electrical operational benefits. Fig. 2 shows the DISCOs buses
voltage profile in either investing in substation expansion alone
or DG and substation expansion option, taking into consideration the planners decision. The voltage profile, as shown in
Fig. 2, in the case of DG planning is much better than that for
substation expansion alone at all DISCOs buses 18, while the
substation bus-9 voltage is kept constant.
One more benefit of introducing DG to solve the DSP
problem is shown in Fig. 3. It shows a reduction in the power

Fig. 2.

Scenario A: DISCOs buses voltage profile.

Fig. 3.

Scenario A: DISCOs primary distribution feeder power flow.

Fig. 4.

Scenario A: DISCOs DG and substation powers.

flow in the primary feeders, which results in reducing the

DISCOs system network losses and, therefore, the total payment spent for compensating the losses. Also, it reduces the
stress on the feeders loading, especially for the outgoing substation feeder segments, as a result increasing their lifetime. It
adds the opportunity to use the existing DISCOs network for
further load growth without the need for feeder upgrading. The
optimal power obtained from each selected DG and the existing
substation is given in Fig. 4.
It is to be mentioned that the authors do not perform reliability
analysis, and therefore, the model results do not include the cost
of system reliability. Reliability analysis can be conducted as a
post process using the approaches presented in [16] and [17].
2) DISCOs Feeders Thermal Capacity Is Violated: In
this case, we examine the benefits that can be obtained if
implementing DG for DSP versus substation expansion if
the DISCOs feeder thermal capacity is violated. Therefore,
some feeder upgrading is required in the case of investing in
expanding the existing substation alone. The same proposed
optimization model is executed after giving the option of feeder
upgrading. The optimal results are shown in Table II.

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TABLE II
DG VERSUS SUBSTATION EXPANSION WITH FEEDER UPGRADING

Fig. 5. Scenario A: DISCOs buses voltage profile with feeder upgrading for
the substation planning option.

Fig. 6. Scenario A: DISCOs primary distribution feeder power flow with

feeder upgrading for the substation planning option.

Table II shows that in the case of the substation expansion option, three out of four outgoing feeder segments from the substation are upgraded with an investment decision of 4.5 M$. However, the rest of the five feeder segments are kept without upgrading, as their power flow is less than their thermal capacity
limits. As we mentioned before, two transformers are selected
by the optimization model to meet the load growth.
On the other hand, implementing DG as an alternative option in DSP provides 20% less total planning cost. These savings are gained without any need for feeders upgrading while
keeping the feeder thermal capacity limit. The optimal DGs
siting occurs at bus-1 for 1-MVA operating capacity and another
as backup and three groups, each consisting of 4-MVA operating
capacity and 1-MVA backup at buses 2, 4, and 8.
Fig. 5 shows the DISCOs bus voltage profile. It is obvious
that in the case of substation expansion, the voltage profile will
be the same as in Fig. 2, while in the case of DG, the voltage
profile is better than that for substation expansion alone and different from that obtained in Fig. 2, as the obtained optimal DGs
sizing and siting is different from that obtained in Table I. Results show an improvement in the voltage of DISCOs buses
14, 7, and 8, with less improvement than those in Fig. 2 at
DISCOs buses 5 and 6.
Fig. 6 shows the power flow in DISCOs feeders. The feeders
power flow in the case of an expanding substation is quite similar to that shown in Fig. 3, as the violated feeders have been
chosen to be upgraded, while in the case of DG planning, it is
different from its similar DG planning case in Fig. 3, as DGs
can limit the feeders power flow to their thermal capacity limit.
The optimal DGs sizing and siting and the existing substation
power obtained from the optimization model are given in Fig. 7.

Fig. 7. Scenario A: DISCOs DG and substation powers.

B. Scenario B: DG versus Intertie

In this scenario, the DISCOs existing substation is connected
to another identity through an existing intertie. The DISCO has
the option to purchase power from the main grid at predetermined market price rates or invest in the DG option to meet the
load growth demand. The optimization model examines the DG
investment option versus purchasing power from intertie in four
rates according to the amount of power purchased, as stated in
(9).
1) DISCOs Feeder Thermal Capacity Is Adequate: In this
case, the DISCO has the option to use an existing intertie as
a planning option to satisfy its load growth demand. The proposed optimization model (1) and (3) is carried out, subject to
constraints (4)(9) and setting the candidate DG capacity decisions to zero. The model will provide the optimal number of
intertie transactions and their amount of power delivered from
the main grid to the DISCOs network, which represents the additional amount of power purchased by the DISCO to meet its

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TABLE III
DG VERSUS INTERTIE

peak demand growth. The output solution for the intertie planning option is shown in the first column of Table III, where three
intertie transactions are carried out.
However, in the case of using DG as an alternative option with
the intertie option for DSP, much better planning decisions are
obtained. The proposed optimization model (1) and (3) calculation is carried out taking constraints (4)(9) and setting multiple DG units, as discussed in Scenario A. The second column
in Table III shows the output solution for DG investment and
intertie options. It is to be noted that in three groups of DGs,
each group contains 4-MVA operating capacity, and 1-MVA as
backup at DISCOs buses 2, 6, and 8 is chosen in addition to a
single transaction taking place by the intertie of 0.7328 MVA.
This intertie amount of power is practically acceptable as the intertie feeder already exists, unlike the case of expanding an existing substation (see the second column in Table I). Therefore,
we get the optimal intertie transactions and the DGs sizing and
siting with a lower total planning cost than in the case of purchasing power from the intertie alone by a total planning savings
of 16.2%.
Table III provides detailed results obtained from the optimization model for Scenario B. It is obvious that by investing in DG
rather than purchasing power at high market price rates from an
existing intertie, the DISCO can reduce its customers bills by
a value of $3.6882/MWh.
As discussed before in Scenario A, Fig. 8 shows a better
voltage profile for all DISCOs buses in the case of DG planning with intertie rather than the intertie planning option alone.
A reduction in the primary feeders power flow, as shown
in Fig. 9, occurs that results in the reduction of the DISCOs
system losses cost and relief of feeders loading. Fig. 10 shows
the optimal DG sizing and siting, intertie transactions, and substation purchased power in the case of introducing DG and intertie planning options to the DSP optimization model.
2) DISCOs Feeder Thermal Capacity Is Violated: If the
DISCOs primary feeders thermal capacity is violated, then

Fig. 8.

Scenario B: DISCOs buses voltage profile.

Fig. 9.

Scenario B: DISCOs primary distribution feeder power flow.

Fig. 10.

Scenario B: DG, intertie, and the substation power.

some of the feeders have to be upgraded in the case of the

intertie planning option or examining the feasibility of implementing DG for DSP with the intertie option to avoid the
feeders upgrading. Table IV shows the optimal output from the
proposed optimization model.
Table IV shows that similar to the case of the substation expansion option (Scenario A), three segments have to be upgraded; however, implementing DG with the intertie in the DSP
as an alternative option provides a lower total planning cost of
22.26% without any feeder upgrading.
IV. CONCLUSION
This paper introduces a novel framework for implementing
DG capacity investment as an attractive option in distribution
system planning. A new developed optimization model is implemented successfully to estimate the optimal DG capacity investment (sizing and siting) to serve peak demands optimally
integrated with other traditional planning decisions. The proposed optimization model aims to minimize the total system
cost: DG investment and O&M costs, cost of purchasing power
by the DISCO from the main grid, and the payments toward

EL-KHATTAM et al.: AN INTEGRATED DG OPTIMIZATION MODEL

TABLE IV
DG VERSUS INTERTIE WITH FEEDER UPGRADING

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Walid El-Khattam (S00) is currently working toward the Ph.D. degree at the
University of Waterloo, Waterloo, ON, Canada.
He is with the teaching faculty in the Department of Electrical Power and
Machines, Ain Shams University, Cairo, Egypt.

Y. G. Hegazy (M96) is an Assistant Professor in the Department of Electrical

Power and Machines, Ain Shams University, Cairo, Egypt, and a Visiting Assistant Professor, University of Waterloo, Waterloo, ON, Canada.

M. M. A. Salama (F02) is a Professor in the Electrical and Computer Engineering Department at University of Waterloo, Waterloo, ON, Canada.