A Mixed Integer Linear Programming model of a zonal electricity market with a dominant producer

Abstract

We consider a liberalized electricity market, divided in zones interconnected by capacitated transmission links, where a large dimensional power producer operates. We introduce a model for determining the optimal bidding strategies of the large dimensional producer, so as to maximize his own market share, while guaranteeing an annual profit target and satisfying technical constraints. The model determines the optimal medium-term resource scheduling and yields the hourly zonal electricity prices, as it includes constraints representing the Market Clearing process. In order to compute the global solution, the complementarity conditions are formulated as mixed integer linear constraints and the revenue terms are expressed by piece-wise linear functions. The model can be used for analyzing the behavior of market prices in electricity markets where a large dimensional producer can exert market power. It can also be used by investors as a simulation tool for evaluating both the impact on the market and the profitability of investment decisions in the zonal electricity market. A case study related to the Italian electricity market is discussed.