Towards the development of risk-constrained optimal bidding strategies for generation companies in electricity markets

In the competitive electricity market environment, generation dispatching is bid-based, and individual generation companies (Gencos) are required to compete with rivals through bidding to the market. Competition implies the opportunities for Gencos to get more profit and, in the meantime, the risk of not being dispatched. As a result, it has become a major concern for Gencos to build optimal bidding strategies so as to maximize profits while minimizing risks associated. In this paper, a new approach is developed for building optimal bidding strategies with risks taken into account for Gencos participating in a pool-based single-buyer electricity market. It is assumed that each Genco bids a linear supply function and that the system is dispatched to minimize the total purchasing cost of the single-buyer. Each Genco chooses the coefficients in the linear supply function for making tradeoff between two conflicting objectives: profit maximization and risk minimization. A stochastic optimization model is established for the purpose and a novel method for solving this problem is presented. Numerical test results for a simulated electricity market with six Gencos show clearly the essential features of the developed model and method. (C) 2004 Elsevier B.V. All rights reserved.