Offer stack optimization in electricity pool markets

Offer stack optimization in electricity pool markets

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Article ID: iaor20033187
Country: United States
Volume: 51
Issue: 3
Start Page Number: 397
End Page Number: 408
Publication Date: May 2003
Journal: Opens Res
Authors: , ,
Keywords: programming: dynamic
Abstract:

We consider a generator making offers of energy into an electricity pool market. For a given time period, it must submit an offer stack, consisting of a fixed number of quantities of energy and prices at which it wants these quantities dispatched. We assume that the generator cannot offer enough power to substantially affect the market price, so the optimal response would be to offer energy at marginal cost. However, the market rules do not permit an arbitrary function, so the problem is to find an offer stack approximating marginal cost in a way that maximizes its profit. We give optimality conditions for this problem and derive an optimization procedure based on dynamic programming. This procedure is illustrated by applying it to several examples with different costs of production.

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