Power portfolio optimization in deregulated electricity markets with risk management

In a deregulated electric power system, multiple markets of different time scales exist with various power supply instruments. A load serving entity (LSE) has multiple choices from these instruments to meet its load obligations. In view of the large amount of power involved, the complex market structure, the risks in such volatile markets, the stringent constraints to be satisfied, and the long time horizon, a power portfolio optimization problem is of critical importance for an LSE to serve its load, maximize its profit, and manage its risks. In this paper, a midterm power portfolio optimization problem with risk management is presented. Key instruments are considered, risk terms based on semi-variances of spot market transactions are introduced, and penalties on load obligation violations are added to the objective function to improve algorithm convergence and constraint satisfaction. To overcome the inseparability of the resulting problem, a surrogate optimization framework is developed, enabling a decomposition and coordination approach. Numerical testing results show that our method effectively provides decisions for various instruments to maximize profit and manage risks, and it is computationally efficient.