Electricity-Aware Bid Format for Coordinated Heat and Electricity Market Clearing

TL;DR

This paper proposes an electricity-aware bid format for heat and electricity market coordination, improving cost efficiency and reducing losses by anticipating market impacts within a sequential market framework.

Contribution

It introduces a novel bid mechanism modeled as a trilevel optimization problem, enabling better coordination without changing the existing sequential market practice.

Findings

4.5% reduction in total operating costs

Up to 20.3 million euros in loss reduction

Improved bid validity and market efficiency

Abstract

Coordination between heat and electricity markets is essential to achieve a cost-effective and efficient operation of the energy system. In the current sequential market practice, the heat market is cleared before the electricity market and has no insight into the impacts of heat dispatch on the electricity market. While preserving this sequential practice, this paper introduces an electricity-aware bid format for the coordination of heat and electricity systems. This novel market mechanism defines heat bids conditionally on the day-ahead electricity prices. Prior to clearing heat and electricity markets, the proposed bid selection mechanism selects the valid bids which minimize the heat system operating cost while anticipating heat and electricity market clearing. This mechanism is modeled as a trilevel optimization problem, which we recast as a mixed-integer linear program using a lexicographic function. We use a realistic case study based on the Danish electricity and heat system and show that the proposed bid selection mechanism yields a 4.5% reduction in the total operating cost of heat and electricity systems compared to the existing market-clearing procedure while reducing the financial losses of combined heat and power plants and heat pumps due to invalid bids by up to 20.3 million euros.