An optimization model for integrated portfolio management in wholesale and retail power markets

Abstract

Abstract: The increasing interactions and interdependences of the wholesale and retail markets in the power sector have created the need for development of integrated approaches for the optimal portfolio management of vertically integrated utilities, aiming at drastically limiting their risk exposure. This work presents a generic mixed integer linear programming (MILP) model for the optimal clearing of a wholesale power market including market products widely used in power exchanges such as block and hourly orders. Based on the market clearing results, it then calculates the economic balance of vertically integrated utilities participating in retail markets, covering the whole value chain in the power sector. By considering a wide range of technology options in the wholesale market, including fossil fuel-based thermal units with or without carbon capture and sequestration capability (CCS), nuclear power, renewable energy, electricity trading and storage options, as well as different types of consumers in the retail market (low, medium and high voltage), the model determines the optimal electricity generation mix, the system’s marginal price and its environmental performance, as well as the net economic position of each power utility in both wholesale and retail markets. A series of sensitivity analyses on the CO2 emission pricing, the renewables’ penetration, and the applied environmental policy has been conducted to investigate the influence of several economic, technical and policy parameters on the operational scheduling and financial planning of each utility. The model applicability has been assessed in an illustrative case study of a medium-sized power system considering also its interconnections with neighboring power systems. The model results quantify the risk facing electric utilities participating in both wholesale and retail markets under several market conditions and with different schemes on the generation side, as well as with different representation shares on the demand side. The proposed optimization framework can provide useful insights on the determination of the optimal integrated generation and retail portfolios that address the new market operating challenges of contemporary power systems, subject to several technical and economic constraints, enabling also the design of medium-term operational strategies for vertically integrated power utilities.