Chapter 11 - Electricity portfolio optimization: Cost minimization using MILP

Abstract

The constantly developing power markets have been attracting the interest of the academic society for the last decades. The majority of such research focuses on the overall cost reduction of the market’s operation and the improvement of social welfare. However, the present research focuses on the electricity provider’s side and the minimization of its cost while satisfying the demand of the consumers. We propose an optimization-based methodological framework for the optimal economic portfolio management of a provider. The latter has the ability to produce electricity from its natural gas powerplant, buying from the day ahead spot market or curtailing part of the demand through demand response programs. More specifically through the development of a mixed integer linear programming (MILP) model, it quantifies the proposed new alterations of the spot market products as well as considering the consumer behavior in demand response programs. The model incorporates the ability of the provider to meet the demand via three different options as mentioned above. As far as the spot market products are concerned, it integrates the abilities of: base load contract (BLC), three kinds of peak load contracts (12,4,2-h PLCs), and standard hourly products. The last option of demand response refers to load curtailment, with an upper constraint on the curtailed power reflecting the consumer’s behavior in terms of participation, response, and persistence. The usefulness of such research is being presented by comparing the performance of three different models and achieving a significant further cost minimization of 9% in the provider’s total cost minimization.