Optimal Bidding Strategies for a Small Generation Company in a Day-Ahead Electricity Market with Bilateral Contracts Taken into Account

Abstract

Problem Statement: Deregulation power systems have been force to change their structures, from vertically integrated to open market systems. Each generation company (Genco) is required to compete with rivals through bidding in a pool market and making a bilateral contract with a distribution company (Disco) or consumers to maximize its own profits. A unit commitment becomes responsible for each Genco and difficult for Genco that have one generation plant or small generation capacity. The objective of a Genco is to maximize its profits with makes a decision submit bidding price function to the Independent System Operator (ISO). In order to achieve this goal, it is necessary and important for a small Genco to build optimal bidding strategies considering a bilateral contract and a unit commitment with constraints in time periods for possibilities to get a discontinuous dispatch that could reduce total profits. Approach: The proposed methodology employs an optimization method like Lagrange Relaxation to solve the optimal bidding problem. The solution procedure is applied in the study case and change the market condition to show the effect of bilateral contract to marginal clearing price (MCP), generation output and total profit for a small Genco. Result: The result of the proposed method shows that a Genco can build optimal bidding strategies to maximize total profit considering unit commitment and bilateral contract. Simulation results of a numerical example have demonstrated the bilateral contract reduced the hourly MCP. The bilateral contract will guarantee the Genco getting continuous dispatch during time periods. Conclusions/Recommendations: The proposed method for building optimal bidding strategies in a day-ahead electricity market to maximize total profit considering unit commitment and bilateral contract is helpful for a Genco to make decision in submit bidding to an ISO.