Modeling Strategic Behaviors for GenCo With Joint Consideration on Electricity and Carbon Markets

Abstract

With the development of carbon markets, conventional generators are undergoing electricity markets and carbon markets at the same time. To fulfill the carbon market requirements and cope with the emerging cross-market arbitrage, the multi-market strategic behaviors of the generation company (GenCo) should be carefully studied. In this paper, the strategic behaviors of a GenCo with joint consideration of the electricity market and carbon market are modeled. First, the dynamic carbon emission intensity (CEI) is introduced to achieve the numerical relationship between the power output and carbon emissions, by which GenCo is demonstrated as a prosumer in the carbon market. Then, the strategy model is built in a bi-level structure. GenCo's multi-market profits maximization model is built at the upper level to determine the best bidding curves. The lower level is made up of two market-clearing models: the day-ahead electricity market for economic power dispatch and the bi-directional carbon market accounting for prosumers' variable trading positions. Then, the high dimensional nonlinearity bilevel model is reformulated and part-linearized by the Karush-Kuhn-Tucker and strong duality theorems. Case studies based on an IEEE 30-bus system indicate that dynamic CEIs have a significant impact on GenCo's cross-market arbitrage by determining its trading volume and positions in the carbon market.