Normal boundary intersection method for suppliers’ strategic bidding in electricity markets: An environmental/economic approach

Abstract

In this paper the problem of developing optimal bidding strategies for the participants of oligopolistic energy markets is studied. Special attention is given to the impacts of suppliers’ emission of pollutants on their bidding strategies. The proposed methodology employs supply function equilibrium (SFE) model to represent the strategic behavior of each supplier and locational marginal pricing mechanism for the market clearing. The optimal bidding strategies are developed mathematically using a bilevel optimization problem where the upper-level subproblem maximizes individual supplier payoff and the lower-level subproblem solves the Independent System Operator’s market clearing problem. In order to solve market clearing mechanism the multiobjective optimal power flow is used with supplier emission of pollutants, as an extra objective, subject to the supplier physical constraints. This paper uses normal boundary intersection (NBI) approach for generating Pareto optimal set and then fuzzy decision making to select the best compromise solution. The developed algorithm is applied to an IEEE 30-bus test system. Numerical results demonstrate the potential and effectiveness of the proposed multiobjective approach to develop successful bidding strategies in those energy markets that minimize generation cost and emission of pollutants simultaneously.