Optimal Joint Bidding and Pricing of Profit-seeking Load Serving Entity

TL;DR

This paper develops a bi-level optimization framework for load serving entities to jointly determine optimal bids and prices in electricity markets, enabling profit maximization through a tri-layer market model.

Contribution

It introduces a novel tri-layer market model and transforms the joint bidding and pricing problem into an efficiently solvable mixed integer linear program.

Findings

The model effectively captures the coupling between bidding and pricing.

Numerical results demonstrate the profit-maximizing strategies of LSEs.

The approach provides insights into LSE behavior in electricity markets.

Abstract

The demand response provides an opportunity for load serving entities (LSEs) that operate retail electricity markets (REMs) to strategically purchase energy and provide reserves in wholesale electricity markets (WEMs). This paper concerns with the problem of simultaneously determining the optimal energy bids and reserve offers an LSE submits to the WEM as well as the optimal energy and reserve prices it sets in the REM so as to maximize its profit. To this end, we explicitly model the tri-layer market structure that consists of a WEM, a REM, and a set of end user customers, so as to capture the coupling between the bidding problem and the pricing problem. Based on the tri-layer market model, we then formulate the joint bidding and pricing problem as a bi-level programming problem and further transform it into a single-level mixed integer linear programming problem, which can be solved efficiently. Numerical studies using the IEEE test cases are presented to illustrate the application of the proposed methodology as well as to reveal several interesting characteristics of the LSE's profit-seeking behavior.