Economic dispatch, also called least-cost economic dispatch, is the operation of generation facilities to reliably produce energy at the lowest cost, recognizing any operational limits of generation and transmission facilities.
Generally, economic dispatch implies utilizing the generating unit with the lowest variable cost, or in a competitive wholesale market the unit with the lowest price offer, to ramp up to serve increases in loads. Or conversely, to ramp down the most expensive unit as loads decline.
In reality, numerous factors in addition to variable costs are considered when scheduling generation including:
Ensuring sufficient supply flexibility to quickly respond to variations in loads and generation output (including variability of renewable generation)
The need to maintain reserves to cover unexpected load increases or generation and/or transmission outages
Scheduling requirements due to environmental laws, hydro conditions, or fuel limitations.
Dispatch that takes these factors in considerations over a large transmission area is called security constrained economic dispatch, or SCUD.
For vertically integrated market structures, regulators commonly require utilities to demonstrate they are keeping costs passed on to customers as low as possible by implementing economic dispatch. In competitive wholesale markets, the market structure and related dispatch models are designed to result in least-cost economic dispatch without regulatory oversight.