Optimal allocation of spot market and bilateral contract transactions through quantity declaration adjustments

Abstract

This study develops a methodology for re-scheduling the economic purchases of energy in the spot market and in the bilateral contracts through bilateral contract adjustments with corresponding penalties. The methodology minimizes the total monthly energy cost incurred by a distribution company by optimally allocating the energy purchases between spot market and bilateral contracts. It considers the effect of these changes to the generation companies' contracted sales. The corresponding penalty cost is based on the equilibrium point wherein the distribution company's savings matches the increase in the generation companies' sales. The methodology is applied to the settlement processes defined in the Philippine Wholesale Electricity Spot Market (WESM) Rules and Price Determination Methodology (PDM) in which bilateral contract quantities are used as decision variables. The new schedules of bilateral contract quantities which are beneficial to both the generating and distribution companies yielded cheaper energy purchases without breaching the contracts.