Development of bidding strategies in electricity markets using possibility theory

Abstract

In the electricity market environment, bidding strategies employed by generation companies may have significant impacts on their own benefits, and on the operating behaviors of an electricity market as well. Hence, how to develop optimal bidding strategies for generation companies or how to analyze strategic behaviors of them and hence to figure out the potential market power abuse is now a very active research area. A possibility theory based approach is proposed in this work for building optimal bidding strategies for generation companies. Based on historical bidding data, the available (production cost) data before the power industry restructuring and experts' heuristic knowledge, the well-known fuzzy set theory is employed to represent the estimated bidding behaviors of rival generation companies, and a fuzzy programming model is developed and a solution method follows. The approach is especially suitable for those electricity markets recently launched, since sufficient historical bidding data is not available and hence probability methods cannot be employed. Finally, a sample example with six generation companies participating in an electricity market is served for demonstrating the essential features of the presented approach.