Pool Strategy of a Producer With Endogenous Formation of Locational Marginal Prices

TLDR

The study examines a strategic power producer operating in an electricity pool. The paper proposes a method to compute the producer’s optimal offering strategy. The authors formulate a bilevel program that models the producer’s profit maximization against a network‑constrained, multiperiod market clearing with demand and rival offer uncertainty, and transform it into a mixed‑integer linear program using duality and KKT conditions. Illustrative examples and a case study demonstrate the approach, leading to conclusions about its effectiveness.

Abstract

This paper considers a strategic power producer that trades electric energy in an electricity pool. It provides a procedure to derive the optimal offering strategy of this producer. A multiperiod network-constrained market-clearing algorithm is considered. Uncertainty on demand bids and offering strategies of rival producers is also modeled. The proposed procedure to derive strategic offers relies on a bilevel programming model whose upper-level problem represents the profit maximization of the strategic producer while the lower-level one represents the market clearing and the corresponding price formation. This bilevel model is reduced to a mixed-integer linear programming problem using the duality theory and the Karush-Kuhn-Tucker optimality conditions. Results from an illustrative example and a case study are reported and discussed. Finally, some relevant conclusions are duly drawn.