Optimal bidding strategy in transmission-constrained electricity markets

• An MPEC problem is formulated and solved for the determination of the optimal offering strategy of a strategic producer.
• A detailed unit commitment modeling in the strategic producer profit maximization (first-level) problem is used.
• The proposed MPEC model is effectively transformed into an MILP model, which is solved using a commercial MILP solver.
• A PTDF modeling of the transmission network constraints is proposed and compared to the respective Nodal formulation.
• Extensive simulations in two different real test systems show the efficiency of the PTDF formulation.

This paper addresses the problem of developing an optimal bidding strategy for a strategic producer in a transmission-constrained day-ahead electricity market. The optimal bidding strategy is formulated as a bi-level optimization problem, where the first level represents the producer profit maximization and the second level represents the ISO market clearing. The transmission network is incorporated into the ISO problem under two different approaches based on the Nodal and PTDF formulation, respectively. The bi-level problem is converted to a mathematical program with equilibrium constraints (MPEC) which, in turn, is transformed into a mixed-integer linear programming (MILP) model using the Karush–Kuhn–Tucker (KKT) optimality conditions and the strong duality theory. Test results on the IEEE 24-bus and 118-bus systems show that the PTDF formulation of the transmission constraints is computationally far more efficient than the Nodal formulation.