The impact of FTR on LSE's strategic bidding considering coupon based demand response

Abstract

Financial transmission rights (FTR) is a financial instrument for the electricity market participant to hedge the transmission congestion cost. With growing development in demand response, load serving entities (LSEs) may participate in the electricity market as a strategic bidder by offering coupon-based demand response (C-DR) programs to customers. In the LSE's bidding process, the impact of FTR which the LSE holds should be considered. To address this challenge, a new strategic bidding model is proposed in which the primary objective is to maximize the LSE's profit including the benefit from FTR by providing C-DR to customers. The proposed strategic bidding is a bi-level optimization problem with the LSE's net revenue maximization as the upper level problem and the ISO's economic dispatch (ED) for generation cost minimization as the lower level problem. This bi-level model is then converted to a mathematic problem with equilibrium constraints (MPEC) by recasting the lower level problem as its Karush-Kuhn-Tucher (KKT) optimality conditions. Further, this MPEC is transformed to a mixed-integer linear programming (MILP) problem based on the strong duality theory, which is solvable using available optimization software. In addition, the validity of the proposed method has been verified with case studies.