Optimal bidding strategy in transmission-constrained electricity markets

Abstract

This paper addresses the problem of developing an optimal bidding strategy for a strategic producer in a transmission-constrained day-ahead electricity market. The optimal bidding strategy is formulated as a bi-level optimization problem, where the first level represents the producer profit maximization and the second level represents the ISO market clearing. The transmission network is incorporated into the ISO problem under two different approaches based on the Nodal and PTDF formulation, respectively. The bi-level problem is converted to a mathematical program with equilibrium constraints (MPEC) which, in turn, is transformed into a mixed-integer linear programming (MILP) model using the Karush–Kuhn–Tucker (KKT) optimality conditions and the strong duality theory. Test results on the IEEE 24-bus and 118-bus systems show that the PTDF formulation of the transmission constraints is computationally far more efficient than the Nodal formulation.