An optimal trading problem in intraday electricity markets

TL;DR

This paper develops explicit strategies for optimal intraday electricity trading by power producers, accounting for demand uncertainty, price impacts, forecast errors, and production delays, thus advancing operational decision-making in energy markets.

Contribution

It introduces explicit approximate strategies for intraday trading considering demand randomness, price impacts, forecast errors, and production delays, which are novel in this context.

Findings

Explicit approximate optimal trading strategies derived

Remarkable properties of trading rates identified

Inclusion of demand forecast jumps and delays enhances model realism

Abstract

We consider the problem of optimal trading for a power producer in the context of intraday electricity markets. The aim is to minimize the imbalance cost induced by the random residual demand in electricity, i.e. the consumption from the clients minus the production from renewable energy. For a simple linear price impact model and a quadratic criterion, we explicitly obtain approximate optimal strategies in the intraday market and thermal power generation, and exhibit some remarkable properties of the trading rate. Furthermore, we study the case when there are jumps on the demand forecast and on the intraday price, typically due to error in the prediction of wind power generation. Finally, we solve the problem when taking into account delay constraints in thermal power production.