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Strategic Bidding Under Uncertainty: A Binary Expansion Approach
Mario Veiga Pereira, Member, IEEE, Sérgio Granville, Member, IEEE, Marcia H. C. Fampa, Rafael Dix, and Luiz Augusto Barroso, Student Member, IEEE

Abstract—This work presents a binary expansion (BE) solution approach to the problem of strategic bidding under uncertainty in short-term electricity markets. The BE scheme is used to transform the products of variables in the nonlinear bidding problem into a mixed integer linear programming formulation, which can be solved by commercially available computational systems. The BE scheme is applicable to pure price, pure quantity, or joint price/quantity bidding models. It is also possible to represent transmission networks, uncertainties (scenarios for price, quantity, plant availability, and load), financial instruments, capacity reinforcement decisions, and unit commitment. The application of the methodology is illustrated in case studies, with configurations derived from the 80-GW Brazilian system. Index Terms—Electricity pool market, market models, mixedinteger linear programming, optimization methods.

NOMENCLATURE . Those that beThe generators are indexed by ; the remaining long to the bidder, agent A, are indexed by . The bids for are generators are indexed by the main decision variables for the strategic bidding problem. (in dollars per They are characterized by prices (in Megawatthours). Megawatthour) and quantities The price and quantity bids for the remaining generators are assumed to be known. They are represented in the bidding and . When scenarios are used to problem as in each scenario are represent uncertainties, the bids for different but are still assumed to be known values. I. INTRODUCTION


ANY countries around the world have implemented reforms in their power sectors, with emphasis on competition and private investment. Although the details of the regulatory frameworks change in each country, their overall organization in most cases follows the same principles, known as the “standard model” [12]. One of the basic features in the standard model is a short-term electricity market, where energy sales and purchases are settled on an hourly basis. In a simplified way, the short-term market works as follows: 1) At
Manuscript received May 28, 2004. Paper no. TPWRS-00577-2003. M. V. Pereira, S. Granville, and L. A. Barroso are with Power Systems Research, Rio de Janeiro, Brazil (e-mail: M. H. C. Fampa is with Instituto de Matemática/COPPE-Sistemas, Universidade de Federal do Rio de Janeiro, Rio de Janeiro, Brazil (e-mail: R. Dix is with Instituto de Matemática Pura e Aplicada, Rio de Janeiro, Brazil (e-mail: Digital Object Identifier 10.1109/TPWRS.2004.840397

the end of each day, generators and loads submit price and quantity bids for each hour of the following day; 2) an equilibrium process is then simulated, where the settlement price, or spot price, is adjusted until total dispatched generation is equal to total load; and 3) the energy produced by the dispatched generators (consumed by load agents) is remunerated (charged) based on the spot price. The existence of a bid-based dispatch/settlement poses complex technical challenges for both bidders and regulators. For each bidder, the question is how to develop bidding strategies that maximize their expected net revenue. For example, [9] shows that the optimal strategy for a price-taker bidder is to bid the plant’s variable operating cost. In the case of thermal plants, this strategy would seem straightforward, because the variable costs are (mostly) a function of fuel costs. In the case of hydro plants, however, the situation is far from clear. The reason is that the hydro reservoirs allow the bidder to postpone energy production if future prices are expected to be higher than the current price. As a consequence, the plant’s variable cost is actually an opportunity cost, which depends on future scenarios of hydrology, load, and, most importantly, on the future production of other generators. The calculation of opportunity costs for hydro plants is a complex stochastic optimization problem, which is usually solved by stochastic dynamic programming techniques [8], [17], [18]. In addition, the cost-based bidding scheme proposed in [9] is optimal only if the bidder has no market power, i.e., is unable to influence the system spot prices. As it is well known, this assumption may not be true in several situations, for example, in the peak load hours or when transmission constraints are binding. In these cases, bidders will be interested in devising strategies for optimizing their revenues, such as decreasing the quantity offered and/or increasing the price bids. Conversely, regulators will be interested in analyzing such strategic bidding schemes, in order to prevent abuses. The strategic bidding problem is usually formulated as a bilevel optimization problem, which is, in turn, transformed into a nonlinear programming model through the use of Karush–Kuhn–Tucker complementarity conditions [10], [11], [19], [20]. Because the resulting problem is highly nonconvex, there has been an intensive search for efficient solution methods, with proposed solution schemes ranging from heuristics to specialized algorithms and specific equilibrium models (see [3], [10], [11], and [14]). Although several efficient approaches have been reported in the literature, it is usually not possible to ensure that the global optimal solution has been found.

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It is also possible to represent transmission networks (zonal and DC power flow). C.PEREIRA et al. the strategic bidding is formulated as a nonlinear programming problem. an increasing price-quantity offer curve is obtained through a MILP whose key element is the residual demand function associated to each scenario. This allowed the calculation of the optimal bidding strategy in a single-bus environment. This work is organized as follows: In Sections II and III. and unit commitment. In Section IV. Formulation as a Nonlinear Optimization Problem The strategic bidding problem (6) and (7) is a bilevel optimization problem. instead of using the residual demand function. based on a binary expansion (BE) of the decision variables (price and quantity bids). or operating profit. Economic Dispatch Once the price and quantity bids of the agents are submitted.: STRATEGIC BIDDING UNDER UNCERTAINTY: A BINARY EXPANSION APPROACH 181 In addition. Associated with the constraints (2)–(4) of the ED. some approaches cannot be easily extended to incorporate important features.. In Section IV. A. transmission network. STRATEGIC BIDDING PROBLEM OVERVIEW For ease of presentation. . (2) (3) (4) . and other extensions is described. which is the bid price. with no transmission constraints and no unit commitment. and (3) and (4) are the generation limits. [1] also represented the residual demand function by an MILP model. or joint price/quantity bidding models. besides primal variables. the generators associated to the competitor firms are explicitly modeled. and the BE solution approach is described. [21] has represented the nonconvex residual demand function in a Cournot scheme by a mixed integer linear programming (MILP) model. there is a is the spot price. the marset of Lagrange multipliers: is the marginal benginal cost of increasing load supply. In order to avoid the above difficulties. The BE solution approach is flexible and applicable to quantity. such as transmission constraints or unit commitment. dual The first step in solving it is to write the optimality conditions of the ED (second-level problem) as part of its constraints set. Megawatthours). uncertainties (scenarios for price. and it is done in one single hour. which in turn depends on the price and quantity bids and of agent A (decision variables) as well as on the load and bid prices/quantities of the remaining generators (known values). financial instruments. B. quantity. The ED is formulated as the following linear problem: (6) subject to for (7) where is the maximum generation capacity of plant .e. and use an alternative MILP formulation. in this section. and the conclusions are presented in Section VI. and the energy production in the The spot price objective function (6) result from the economic dispatch (1)–(4). In this case. a simpler version of the strategic bidding problem is formulated: it is deterministic. and efit of increasing generator ’s quantity bid. uses results from the economic dispatch (1)–(4). including unit commitment. depending on the market arrangement) carries out an economic dispatch (ED) to clear the market and determine the spot price and dispatched generation (there is no possibility for an agent to alter his bid after the ED is carried out). as illustrated in examples derived from the Spanish system. i. The approach is also illustrated with examples from the Spanish system. the modeling of extensions to the BE model is described. The net revenue of agent A. except that it takes uncertainty into account (not considered in [21]). D. the incorporation of uncertainties. is the energy produced by generator (in is the load (in Megawatthours). represented by R. It is implicitly assumed that . In turn. The model application is illustrated in Section V. and load). capacity investment decisions. the market operator (or the independent system operator. are the price/quanwhere tity bids. and Equation (2) represents the load supply and constraints. which. plant availability. (1) subject to multiplier . Generator Net Revenue Each generator receives a gross revenue (in dollars). Note that may be different from . In this work. Bidding Strategy The objective of Agent A is to obtain the combination of price and quantity bids that maximizes its total net revenue: II. price. given by the product of spot price and its energy production . establishing scenarios of residual demand functions for the day-ahead market session. is obtained by deducting the variable operation cost from the total gross revenue (5) where is the variable operation cost of plant (in dollars per Megawatthour).

(11) and (12) imply that (18) (19) (23) As each summation term is nonpositive. This associated to the agent control variables will be important when considering the extension of the formulation to the stochastic case by avoiding the explosion in the number of binary variables. such as penalty interior point algorithms. and (14)–(17) are the complementarity conditions. and a great variety of nonlinear optimization techniques have been applied to these problems in recent years. and it requires binary variables. NO. such as those presented in [1] and [21] and the one presented in this work.182 IEEE TRANSACTIONS ON POWER SYSTEMS. Basic Approach The strategic bidding problem is difficult to solve because of and the products of variables in the objective function (6) and ). 20. we deal with the continuous decision values by a set of discrete values . For that. and [23]). The optimization problem (6)–(17) is nonlinear and nonconvex due to its objective function and constraints. and is a binary variable. Both [10] and [14] address the strategic bidding problem with transmission constraints. [10] generates a random set of starting points to an interior points method to get confidence that a global optimal solution has been achieved. besides (7). (10). For example. that propose a binary representation scheme to deal with problems (6)–(17) through a discrete approximation of some continuous decision variables of the problem (appearing in nonlinear terms). FEBRUARY 2005 Therefore. [10]. The difficulties posed by MPEC to nonlinear programming algorithms are well known. we obtain (25) . and heuristic procedures are sometimes applied to check optimality. a full AC model is considered. III. 1. To apply it. and sequential quadratic programming combined with penalty methods (see [2]. and (13). associated to the ED. we have (20) (21) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) primal-dual equality Equations (8)–(10) are the primal (ED) constraints. algorithms based on the Fischer–Burmeister penalty functions. Multiplying both sides of (26) by and defining a new variable . For example. which imply (24) Rearranging the terms in (24). the product is eliminated by rewriting it in terms of the other products. the following set of constraints. One attraction of the binary representation scheme proposed in this work is that auxiliary integer variables are only . BINARY EXPANSION SCHEME A. In an attempt to avoid this difficulty. First. [14]. The basic idea is to approximate Next. the complementarity conditions (14)–(17) are equivalent to (22) Rearranging terms and using (8) and (22) is equivalent to the primal-dual equality condition: all The final form of the problem we consider in this work has (6) as the objective function and (7)–(13) and (23) as constraints. the complementarity conditions associated to the optimal solution of problem are used (1)–(4): and . we obtain (27) . [16]. and in [14]. and it is an instance of a mathematical program with equilibrium constraints (MPECs) [16]. where for some non. The main difficulty related to these approaches is that there is no guarantee that a global optimal solution is found (see [11] and [23]). The values for the bidding decisions are in the range discrete approximation is written as (26) where . Expression (26) is called a binary expansion. MPECs have been widely studied and directly applied to strategic bidding models (see [11]). As for all j. is added to the strategic bidding problem: and from (9). suppose that the plausible negative integer . VOL. some recent approaches consider the use of integer programming to solve MPECs. [6]. it is necessary to express the complementarity constraints in an equivalent form. (11)–(13) are the dual problem constraints. in constraint (23) ( The proposed solution approach is to transform those products into mixed integer linear expressions.

Applying the above transformations to (6). respectively. and unit commitment. including uncertainty. financial instruments. and (23). The bigger these values. as the value of is increased. is a binary variable. Then. A. capacity expansion decisions. one can see that. a trade-off between accuracy and computer time should be taken into account. one could in theory and discretize instead of . Criteria for Selecting the Binary Variables The BE approximation can be applied to either term of a product of variables. we have all all all all all (44) (45) (46) (47) (48) (49) (31) (32) (33) (34) where . is .PEREIRA et al. However. and is a some non-negative integer such that scalar value.: STRATEGIC BIDDING UNDER UNCERTAINTY: A BINARY EXPANSION APPROACH 183 Equation (27) allows us to replace the product by the linear expression on the right-hand side. Note that the accuracy of the model solution depends directly on the value and . IV. For example. which can be solved by commercial computational systems. . G could be the generator capacity . extensions of the BE solution to more complex models. we arrive at the final BE formulation of the problem Problem (35)–(49) is a mixed linear integer problem. transmission network. relaxed when could be . large enough for the constraints (33) and (34) to be and . we apply the same procedure to the product suming that the plausible bidding range is and applying the binary expansion scheme. the product is transformed into the following of variables in IF-THEN relation: all if then if then (28) (41) (42) (43) Relation (28) is modeled as (29) (30) where G is a scalar value that is large enough for the constraints and . are described. Also. respec(29) and (30) to be relaxed when tively. In . does not decrease. the objective value and . (7)–(13). MODEL EXTENSIONS In this section. for example. For example. is a power of 2. AsNow. uncertain and represented by a set of scenarios with probabilities . In turn. the more precise the of model will be. Representation of Uncertainties Suppose that the bids from generators and the load are . whereas the other variables such as and are the result of an optimization problem associated with the economic dispatch. The same is also true for B. the set of discrete values for using since is contained in the set of discrete values for using . The risk neutral strategic bidding problem (6) and (7) is then formulated as (35) subject to (36) (37) (38) (50) (39) (40) subject to (51) . The reason for selecting is that they are under the direct control of the bidding agent A.

the number of binary variables in the BE expansion is the same as in the deterministic case. FEBRUARY 2005 Similarly to the deterministic case. The only change is that (25). Transmission Network In this section. . This means that. However.184 IEEE TRANSACTIONS ON POWER SYSTEMS. . and ) as the single-bus problem. is modified to represent the fact that spot price varies per bus: (79) all all all all all all all all all all (65) (66) (67) (68) (69) (70) C. and the BE transformations can be applied directly. The net revenue maximization in (6) and (7) becomes (80) subject to (81) The joint optimization of contract amount (assume the is known) and of price/quantity bids in the contract price short-term market introduces a new product of variables . (76) (58) all (59) all Both the load and the price/quantity bids of generators may be different in each scenario . VOL. the decision variables representing price/quantity bids for agent A’s generators are the same for all scenarios. the generation of plant in each scenario and the spot price for that scenario result from the following economic dispatch: (52) subject to multiplier (53) (54) (55) Applying the same variable and constraint transformations as in the deterministic case results in the following mixed integer linear formulation: B. Problem (71)–(76) is the well-known DC power flow approximation. although the problem size increases with the number of scenarios. financial instruments such as forward contracts and options to the bidding model are incorporated. the transmission network is incorporated to the strategic bidding model.e. generator is at bus .. i. 1) Forward Contracts: Suppose that agent A signed a forward contract for MWh with a unit price of (in dollars per Megawatthour). 20. 1. NO. For notational simplicity. Financial Instruments In this section. and is the flow limit in circuit . The bus spot prices and the net revenue are calculated as (77) (78) all all all all all (60) (61) (62) (63) (64) As shown in [17]. sensitivity factor of power flow in circuit with respect to an injection in bus . assume that there is only one generator and one load in each network bus and that they are indexed in the same way. the LP complementarity conditions used in the formulation of the strategic bidding problem are similar to those of the single-bus case (8)–(17). The transmission-constrained strategic bidding has the same products of variables ( . The transmission-constrained economic dispatch is modeled as (see [17] for details) (71) subject to multiplier (72) (73) (74) all (75) (56) all subject to (57) is the where indexes the circuits (K number of circuits). used to rewrite the product in terms of and .

The generation system had a total installed capacity in 2003 of 83 GW. such as Itaipu (12. several analytical tools were developed.: STRATEGIC BIDDING UNDER UNCERTAINTY: A BINARY EXPANSION APPROACH 185 which can be handled by discretizing and applying the BE scheme. the modeling of unit commitment. V. The same approach applies if put options are considered. and diesel plants. and contracted amount. and previous case. Unit Commitment In all previous discussions. Pure Price Bid and Pure Quantity Bid Models Pure price bid and quantity bid models are represented as special cases of the joint price/quantity optimization framework presented previously: The quantity bid model predefines price (usually at zero) and optimizes quantity bids bids . it was assumed that the operating cost was a linear function of energy production. and [19]). 2) Sector Reform: The power sector reform started in the mid-1990s. The variable operating costs for the hydro plants correspond to their . Suppose that each generator has a start-up cost of (in dollars).6 GW) and Tucurui (8 GW). In this case. Similarly to the MILP approach proposed in [21]. the unit commitment constraints (87)–(89) can be incorporated directly to the BE formulation. with the privatization of most distribution companies and the creation of the regulatory agency of the National System Operator and of the Wholesale Energy Market. In order to address the concerns about the effects on the operation of hydro plants in cascade and market power. in particular. where is the the strike price (in dollars per Megawatthour). Brazilian System Overview 1) Generation System: Brazil’s surface area is equivalent to the continental USA plus half of Alaska. As part of the second phase of the reform process in 2002. with 110 hydro plants arranged in complex topologies over 12 main river basins. with a total capacity of 6900 MW (about 8% of the system’s installed capacity). The optimization is carried out for a single hour.” The bidding agent Companhia Energética de São Paulo (CESP) controls five hydro plants. This approach forms the basic optimizes price bids framework for the well-known Bertrand and Cournot models [7]. (positive) difference between spot and strike prices. Bidding Model 1) Strategic Bidder: The Brazilian generation system is composed of 11 companies. As in the capacity investment case. let us assume that agent A may decide on the construction of new generation capacity . D. with unit investment cost (in dollars per installed Megawatts): (86) subject to (87) (88) where t denotes the time period. several mid-sized plants (1–2 GW range).PEREIRA et al. Generation plant sizes include a few very large plants. and the remainder between 100 and 500 MW. the additional set of binary decision variables is . the price bid model predefines quan(usually at the maximum capacity and tity bids . (assume the The joint optimization of contract amount strike price is known) and of price/quantity bids in the shortterm market introduces a new product of variables. Conversely. 2) Call/Put Options: Suppose now that agent A has sold a is the option premium (in dollars). Because the BE strategic bidding (35)–(49) is already an MILP problem. The operating costs are modeled as the following mixed integer linear relation: (89) subject to (90) (91) where represents the (binary) decision to start up generator j. A. and the binary expansion model presented in this work. a stochastic dynamic programming Nash equilibrium model [13] for hydro bidding. B. Table I shows the plant names. the contracted amount the BE scheme can be applied to the product . As seen in (84). [11]. coal. and variable operating costs. the incorporation of the integer capacity investment model (86)–(88) is straightforward. as described previously. 3) Capacity Expansion Decisions: In this case. a model to simulate the competitive operation of hydro plants in cascade [15]. multiplied by the contracted amount. Hydro generation accounts for 85% of the installed capacity. capacities. located in four “zones. including a market simulator. is call option. E. As in the can be discretized. which is the investment decision on project . Thermal generation (28 plants) includes nuclear. CASE STUDY The BE solution approach will be illustrated with a case study derived from the Brazilian system. The whole country is interconnected by 70 000 km of high-voltage transmission lines. the Ministry of Mines and Energy and the regulator investigated the possibility of implementing a price bidding system in Brazil. natural gas. widely used in game-theoretical equilibrium models (see [10]. Problem (6) and (7) then becomes (82) subject to (83) (84) (85) where is the cost (in dollars) to agent A when the buyer is equal to the exercises the call option. the BE scheme allows the representation of nonconvex cost functions and.

4 GHz processor and 512 Mbytes RAM. The water values were calculated following the same approach used for CESP generators. or variable operation cost in the case of thermal plants. Table III shows the production of each plant and the spot price in each of the ten scenarios used in the optimization. equal to 40. Results The expected net revenue with the BE bids was R$ 545 000. other dual variables. against R$ 477 000 with a cost-based bid. which is a gain of R$ 68 000 (14%). where all studies are chained by the well-known “future cost function. NO. since the optimal bidding strategy obtained by the model is compatible with the set of scenarios considered. such as presented in [1]. 1.186 IEEE TRANSACTIONS ON POWER SYSTEMS. Table II compares the BE price bids with the operating costs of Table I. An Xpress MILP solver [24] was used to find the optimal solution. such as in Spain. 300%] of the respective water value. Then. uncertainty can also be modeled by different methods. and the electricity market of El Salvador. each of these selected days would form a scenario for price and quantity. Solteira—had bid prices that were different from their respective costs. that this information is sometimes available only to the market agents and that some markets only make it available some months after the market clearing. Thus. the PJM electricity market. Fig. however. considering a different set of scenarios will lead to a new optimal bidding strategy. • quantity bid: the capacity of each generator was sampled from a binomial distribution for the forced outage rate.” which are the opportunity costs of storing the energy and selling it in the future. VOL. the Australian and New Zealand power pool.1 In this context. 3) Bidding Scenarios: As seen in the previous sections. The total number of integer variables is. 2) Strategic Bidder Model: A pure price bid model was used. that is. Ten bidding scenarios were created by randomly sampling the following parameters: • load level: sampled from a normal distribution with coefficient of distribution 10% around the predicted peak load.” which provides the opportunity costs of storing the energy and selling it in the future (see [8]. • price bid: were kept constant and equal to the water value. the mid-term contemplates a weekly step. C. the bid quantities are the generator capacities. the time stage is a month. and the short-term can consider a daily or hourly time step. In order to obtain the hourly water values. Although. the information on the pricequantity bid of each agent is available once the market has been cleared.) and 2545 constraints. CESP’s plants were assumed to be available. in this case study. a traditional integrated long-mid-short-term study was carried out with this model: In the long term. FEBRUARY 2005 TABLE I CESP GENERATION SYSTEM TABLE II OPTIMAL BID PRICES “water values. 1 compares those spot prices with the ones that would result from cost-based bids. The elapsed time was 120 s on a PC with a Pentium IV 2. in the case of hydro plants. 1In some electricity markets. thus. There are 2694 continuous variables (spot price and generation of each plant in each scenario. 4) BE Model: The stochastic BE model (56)–(70) has binary variables for each of the five plants. TABLE III RESULT: ENERGY PRODUCTION (IN MEGAWATTS) AND SPOT PRICE BRAZILIAN REAL PER MEGAWATTHOUR) (IN Note that the use of different sampling methods may produce different scenario outcomes. The pricing decisions of each plant were divided into 128 segments in the range [100%. such as using historic information. etc. [17]. . and [18]). the bidding scenarios include total load and price/quantity bid for the remaining 133 generators of the system. These price bids form the bidding curve that CESP supplies to the market. The water values were taken from a stochastic hydrothermal scheduling model [8]. Note that only two generators—Jaguari and I. [18] that is similar to the one used by the Brazilian National System Operator. the uncertainty relies on the availability of the “other agents” plants. one possible approach is to forecast the demand behavior of the day under study and use a clustering method to select past days sufficiently similar to this one. only prices are decision variables for CESP. 20. the former electricity market of California. It is true.

D. Math. Barroso. financial instruments. Shanno. and load). Solteira. F. Oliveira. N.. A. Fig. CESP did not have the marginal generator. vol. no. Conejo and F. “Stochastic optimization of transmission constrained and large scale hydrothermal systems in a competitive framework. the bidding strategy had no effect on the net revenue. capacity reinforcement decisions.” Dept. [1] A. Prieto. J. the difference is zero. 2 compares CESP total generation in each scenario for both bidding strategies. IEEE General Meeting. vol. Fletcher and S. 6. Pereira. 80–93. Y. pp. [3] J. Metzler.. 83–98. Jaguari was displaced in the merit order but increasing the company’s net revenue in these scenarios. pp. Fifth ed. 1. Org. V. ON. “Optimal offering strategies for generation companies operating in electricity spot markets. Power Syst. M. or joint price/quantity bidding models. Gross and D. New York: Wiley. Bunn. 51. J. the net revenue difference in scenarios 2 and 5 is negative. [9] G.: STRATEGIC BIDDING UNDER UNCERTAINTY: A BINARY EXPANSION APPROACH 187 Fig. J. VI. REFERENCES Note that spot prices from the BE bidding strategy were higher than the cost-based ones in six of the ten scenarios. and R.” in Modeling Prices in Competitive Electricity Markets. Bushnell. It is also possible to represent transmission networks (zonal and DC power flow). Sen.” Comput. Latorre.” Oper. Financial Eng. no. 1–53.” in Proc. Arroyo. [4] A. 638–645. The application of the methodology is illustrated in case studies with configurations derived from the 80-GW Brazilian system. One can see that in scenarios 6 and 7.” Sociedad de Estadística e Investigación Operativa TOP. Dundee Press. Contreras. Numerical Experience With Solving MPEC and NLPs. . 745–753. NJ. Power Syst. 4. Vanderbei. [8] S.. the plant did not dispatch and missed the opportunity to generate a profit. Dundee.” IEEE Trans. 2002. A. 1. Baillo. G. F. 17. Solteira) in scenarios 3. “Strategy gaming analysis for electric power systems: an MPEC approach. Ed. [2] H. D. The BE scheme is used to transform the products of variables in the nonlinear bidding problem into a MILP. B. and S. Furthermore. and J. Fig. Fig. 2001. Princeton. Rivier. Benson. pp. M. vol. May 2000. “A mixed complementarity model of hydrothermal electricity competition in the western United States. “Optimal response of an oligopolistic generating company to a competitive poolbased electric power market. plant availability. leading to the already mentioned average gain of R$ 68 000. 2. Rep. J. 2. and unit commitment. and A. which naturally led to smaller generation levels than those observed with cost-based bids. vol. and 9. 2003. Tirole. May 2002. CONCLUSIONS This paper presented a BE solution approach to the problem of strategic bidding under uncertainty in short-term electricity markets. no. instead. “Mathematical programming and electricity markets. M. The reason is that the spot price is in between the variable operating cost of Jaguari and its bid price (see Tables II and III). as seen in Fig. Leyffer.” IEEE Trans.–S. M. C. indicating that the cost-based bid was superior to the BE bidding strategy for those scenarios. Toronto. Difference between the net revenue obtained with the BE model price bids and cost-based bids in each scenario. which can be solved by commercially available computational systems. 2. Res. vol. 15. “Complementarity-based equilibrium modeling for electric power markets. 2003. [6] R. M. Finlay.. [10] B. 2000. 424–430. Game Theory. The reason is that the spot prices for those scenarios exceeded the price bid of I. 2. 8. Power Syst. Cambridge. Thomé. [7] D. Ramos. 1996. uncertainties (scenarios for price.. [11] B. 2004. Hobbs. As a consequence. As a consequence. “Generation supply bidding in perfectly competitive electricity markets. The BE scheme is applicable to pure price. Tech. pp. CESP total generation (optimal bidding and cost-based bid) in each scenario.. 2. Princeton Univ. Campodónico. vol. Conejo. 19. “Interior-Point Algorithms. Oper. Ventosa. M. ORFE-03-02. pp. 1. C. L. Theory. Res. Fudenberg and J. Helman.PEREIRA et al. May 2004. Hobbs and U. as one can see in Fig. Canada. F. Granville. MA: MIT Press. this loss was more than offset by higher gains in other scenarios. Pang. no. 3 shows the difference between BE-based and cost-based net revenues for each scenario. In scenarios 1 and 10. de la Torre. 2003. quantity. [5] A. no. 9. quantity. 2.” IEEE Trans. and L. Fig. J. However. Spot prices (optimal bidding and cost-based bid) in each scenario. Penalty Methods and Equilibrium Problems. 3. pp. UK: Univ. One can see in Table III that CESP had the marginal generator (I.

4. A.” IEEE Trans. 1998. 359–375. Latin America. Rio de Janeiro. Pereira. in 2002. Kelman. Brazil.” Utilities Policy. Palo Alto.D. . 16. Making Competition Work in Electricity. 20.D. [20] J. C. 18. Q. L. Previously.Sc. New York: Cambridge Univ. 3. 17. Pereira.” Math. He is now working toward the Ph. V. Aug. Res. A. Nov. V. 354–359. “An individual welfare maximization algorithm for electricity markets. and M. Power Syst. and D.. VOL. Rio de Janeiro.” Ann. and research coordinator at Cepel. 52. CA. Oper. [13] R. Rio de Janeiro. 7. vol. pp. 17. Rafael Dix received the B. “Bidbased dispatch of hydrothermal systems in competitive markets. and J. Barroso. “Price maker self-scheduling in a pool-based electricity market: a mixed-integer LP approach. 1999. Canada. and hydrothermal scheduling tools.. pp. 4.dashoptimization. Power Syst. vol. She is a professor with the Department of Computer Science of the Institute of Mathematics and at COPPE/UFRJ. 81–97. Brazil. [Online]. New York: Wiley.” IEEE Trans. He has been a speaker on deregulated energy markets issues in the USA. Rio de Janeiro. 2001. 2003.. and Europe. Rio de Janeiro. Barroso. Previously. Campodónico. Press. 1. Rio de Janeiro. in 2000. Conejo. and R. no. Ventosa. Hunt. granted by ORSA/TIMS for his work on stochastic optimization applied to hydro scheduling. A. pp. degree in optimization at COPPE/UFRJ. M. S.. vol. NO. no. no. 1037–1042. Kelman.D. strategic bidding. He is the president of Power Systems Research (PSR). Contreras. J.. Mario Veiga Pereira (M’01) received the Ph. 611–618. May 2003. V. pp. Ramos. Pereira was a coreceiver of the Franz Edelman Award for Management Science Achievement. M. “The Stackelberg equilibrium applied to AC power systems—A noninterior point algorithm. in 2000 and is currently engaged in risk management for energy markets and software development for power systems.psr-inc.. [15] P. degree in mathematical economics at the Instituto de Matemática Pura e Aplicada. 590–596. degree in electrical engineering from Pontifical Catholic University of Rio de Janeiro (PUC/Rio). [18] M. 120. degree in optimization from COPPE/Universidade de Federal do Rio de Janeiro. reliability evaluation. “Multi stage stochastic optimization applied to energy planning. Available: http://www. Luo. degree in optimization from the Universidade de Federal do Rio de Janeiro (UFRJ).com/ Sérgio Granville (M’94) received the Ph. [23] (2003) Strategic Bidding Under Uncertainty: A Comparison Between the Binary Expansion Approach and Non Linear Optimization Methods—PSR Tech. Rio de Janeiro. [21] S. L. Mathematical Programming With Equilibrium Constraints. CA. vol.” in Proc. 2002. [22] (2003) Strategic Bidding Under Uncertainty: A MILP Approach—PSR Tech. 1991. Weber and [24] XPress MP. pp.psr-inc. “Modeling competition in electric energy markets by equilibrium constraints. 1996. in 1996. F. Power Syst. Rio de Janeiro. 2002. Dr. Marcia H. M. Available: http://www.Sc. degree in optimization from COPPE/Universidade de Federal do Rio de Janeiro. he was a Visiting Scholar at Stanford University and researcher coordinator at Cepel. and he is currently engaged in regulatory studies and the development of new methodologies and tools for risk management in competitive markets.. J. in 1999. N. Luiz Augusto Barroso (S’00) received the M. Prog. vol. in 1978. G. Power Syst. and R. Aug. [16] Z. V. Kelman. vol. [14] M. de la Torre. [Online].D. Pang. Apr. Overbye. [17] M. and market power in energy markets. He has been working in strategic bidding and market power in energy markets. EPSOM Conf. de Lujan Latorre and S. Rep. where he developed methodologies and software for expansion planning.” IEEE Trans. Fampa. Brazil. Granville. “Long-term hydro scheduling based on stochastic models. “Market power assessment and mitigation in hydrothermal systems.” IEEE Trans. Available: http://www. Fampa received the Ph. Rivier. and M. J. where he has been working in project economics evaluation. Rep. developing methodologies and software for system operation optimization and expansion planning. 2003. 3. 2. system planning studies. Brazil. degree in operations research from Stanford University. pp. M. pp. Ralph. V. He joined Power Systems Research. Rio de Janeiro. Dash Optimization. Pinto. J. Arroyo. no. [Online]. no. Stanford. Pereira. [19] A.188 IEEE TRANSACTIONS ON POWER SYSTEMS. and is working toward the M. Lino. FEBRUARY 2005 [12] S. Rio de Janeiro. M. he was a project manager at the Energy Power Research Institute’s (EPRI) Power Systems Planning and Operation (PSPO) program. He joined Power Systems Research. 233–242. Brazil.D. in 1985. vol.Sc. Pereira and L.