Strategic bidding under uncertainty in a competitive electricity market

Abstract

The electricity industry is suffering an intense process of deregulation and restructuring throughout the world. In many cases generation companies are summoned to submit bids in some sort of organized market where demand and supply are matched and a clearing price for electricity results. In this context bidding effectively the production of the generating units becomes a task of paramount importance. The uncertainty about the behavior of the competitors and the problems inherent in the operation of the generating units turn bidding into a very complex activity. In this paper a systematic and automatic bidding procedure is developed. It consists of a probabilistic optimization tool oriented to the construction of profit-maximizing hourly offer curves. This tool combines a probabilistic representation of the market with traditional cost production techniques. Results of the application of the method to a numerical example are presented.