Optimal electricity supply bidding by Markov decision process

Abstract

The bidding decision making problem is studied from a supplier's viewpoint in a spot market environment. The decision-making problem is formulated as a Markov decision process-a discrete stochastic optimization method. All other suppliers are modeled by their bidding parameters with corresponding probabilities. A systematic method is developed to calculate transition probabilities and rewards. A simplified market clearing system is also included in the implementation. A risk-neutral decision-maker is assumed, the optimal strategy is calculated to maximize the expected reward over a planning horizon. Simulation cases are used to illustrate the proposed method.