Strategic offering under uncertainty in power markets

A power producer implementing nominal strategy can be penalized if not planning for randomness or will lose profit if protects its decisions against the most severe outcome. The robust optimization approach achieves a trade-off between these two extremes. This paper presents a robust method for deriving offers of a strategic generator under uncertainty. The problem is formulated as a bilevel mathematical program wherein the strategic generator, in the upper level, maximizes its profit subject to a transmission-constrained economic dispatch model in the lower-level. The randomness of input parameters in the lower-level problem involving rival offers and market demand, are modeled using uncertainty sets. The bilevel optimization model is then transformed into a mixed-integer linear optimization problem by deriving the robust counterpart of the lower-level problem and making use of a linearization-reformulation technique. Numerical results of several case studies are presented to illustrate the application of the proposed method. (C) 2014 Published by Elsevier Ltd.