Optimal Bidding Strategy of Transactive Agents in Local Energy Markets

Abstract

Expanding the electricity market into the retail domain calls for inexpensive mass-produced smart devices that enable enable small customers to customers to participate in local energy transactions by managing the energy production/consumption and submitting buy/sell bids to the market. In this context, this paper presents a mathematically proven practical approach for bidding of an autonomous smart transactive agent in local energy markets. To reach this goal, behaviors of both risk-neutral and risk-averse agents selling energy to the market are modeled taking into account expected profit and risk criteria. Subsequently, an optimal multi-step quantity-price bidding strategies of risk-neutral and risk-averse agents are extracted. In this context, this paper: 1) introduces the effective metrics and criteria for evaluating a bidding strategy; 2) provides all theorems and lemmas required for reaching an optimal bidding strategy for either a risk-neutral or risk-averse agent; and 3) evaluates and presents the developed approach for different market environments. The developed methodology is shown to be effective in practical applications especially for local markets.