Wind power bidding in electricity markets with high wind penetration

• We analyze the pricing systems and wind power trading in electricity markets.
• We propose a model that captures the relation between market prices and wind power.
• A probabilistic bidding model can increase profits for wind power producers.
• Profit maximizing bidding strategies carry risks for power system operators.
• We conclude that modifications of current market designs may be needed.

ObjectiveThe optimal day-ahead bidding strategy is studied for a wind power producer operating in an electricity market with high wind penetration.MethodsA generalized electricity market is studied with minimal assumptions about the structure of the production, bidding, or consumption of electricity. Two electricity imbalance pricing schemes are investigated, the one price and the two price scheme. A stochastic market model is created to capture the price effects of wind power production and consumption. A bidding algorithm called SCOPES (Supply Curve One Price Estimation Strategy) is developed for the one price system. A bidding algorithm called MIMICS (Multivariate Interdependence Minimizing Imbalance Cost Strategy) is developed for the two price system.ResultsBoth bidding strategies are shown to have advantages over the assumed “default” bidding strategy, the point forecast.ConclusionThe success of these strategies even in the case of high deviation penalties in a one price system and the implicit deviation penalties of the two price system has substantial implications for power producers and system operators in electricity markets with a high level of wind penetration.Practice implicationsFrom an electricity market design perspective, the results indicate that further penalties or regulations may be needed to reduce system imbalance.