Optimally co-ordinated bidding strategies in energy and ancillary service markets

The new electricity market behaves more like an oligopoly than a laissez-faire market due to special features such as, a limited number of producers, large investment size (barrier to entry), transmission constraints and transmission losses which discourage purchase from distant suppliers. This makes it possible for only a few generating companies to service a given geographic region. In an imperfect market each power supplier can increase its own profit through strategic bidding. The problem of building optimally co-ordinated bidding strategies for competitive suppliers in energy and spinning reserve markets is addressed. Each supplier bids a linear energy supply function and a linear spinning reserve supply function to the energy and spinning reserve markets, respectively, and the two markets are dispatched separately to minimise customer payments. Each supplier chooses the coefficients in the linear energy and spinning reserve supply functions to maximise total benefits, subject to expectations about how rival suppliers will bid. A stochastic optimisation model is first developed to describe this problem and a genetic algorithm based method is then presented to solve it. A numerical example is utilised to illustrate the essential features of the method.

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