Applied Energy 105 (2013) 282–292

Contents lists available at SciVerse ScienceDirect

Applied Energy
journal homepage: www.elsevier.com/locate/apenergy

Offering model for a virtual power plant based on stochastic

programming
Hrvoje Pandžić a,⇑, Juan M. Morales b, Antonio J. Conejo c, Igor Kuzle d
a
Department of Electrical Engineering, University of Washington, 185 Stevens Way, 98195 Seattle, WA, USA
b
Department of Electrical Engineering, Technical University of Denmark, Ørsteds Plads, Building 349, 2800 Kgs. Lyngby, Denmark
c
Department of Electrical Engineering, University of Castilla-La Mancha, Campus Universitario, 13071 Ciudad Real, Spain
d
Department of Power Systems, Faculty of Electrical Engineering and Computing, University of Zagreb, Unska 3, 10000 Zagreb, Croatia

h i g h l i g h t s

" A two-stage stochastic offering model for a virtual power plant is presented.
" The virtual power plant consists of an intermittent source, a dispatchable source and a storage unit.
" The virtual power plant trades in the day-ahead and balancing markets.
" Characteristic scenarios are thoroughly analyzed and relevant conclusions are drawn.

a r t i c l e i n f o a b s t r a c t

Article history: A virtual power plant aggregates various local production/consumption units that act in the market as a
Received 24 August 2012 single entity. This paper considers a virtual power plant consisting of an intermittent source, a storage
Received in revised form 30 October 2012 facility, and a dispatchable power plant. The virtual power plant sells and purchases electricity in both
Accepted 29 December 2012
the day-ahead and the balancing markets seeking to maximize its expected profit. Such model is math-
Available online 5 February 2013
ematically rigorous, yet computationally efficient.
The offering problem is cast as a two-stage stochastic mixed-integer linear programming model which
Keywords:
maximizes the virtual power plant expected profit. The uncertain parameters, including the power out-
Virtual power plant
Electricity markets
put of the intermittent source and the market prices, are modeled via scenarios based upon historical
Stochastic programming data. The proposed model is applied to a realistic case study and conclusions are drawn.
Pumped hydro storage plant Published by Elsevier Ltd.
Wind power plant

All these variables are defined in each time period t, each WPP
production scenario w and each day-ahead market price scenario p.
They do not contain a balancing market price subindex since they
are decided before the balancing market prices become known.
1. Introduction
1.1. Virtual power plant concept
Growing environmental concerns have started a boom of
renewable energy technologies whose task is to both satisfy the
ever increasing needs for electricity and to substitute the conven-
tional thermal power plants. On this matter, wind turbines have
⇑ Corresponding author. Tel.: +1 2064273685; fax: +1 2065433842.
E-mail addresses: hrvoje.pandzic@ieee.org (H. Pandžić), juanmi82mg@gmail.
com (J.M. Morales), antonio.conejo@uclm.es (A.J. Conejo), igor.kuzle@fer.hr
(I. Kuzle).
imposed as the leading renewable technology. The widespread
use of wind generators is the result of an economically acceptable
technology which can be installed at any windy location
worldwide.
Due to the intermittency of wind, it is impossible to accurately
predict the output of a Wind Power Plant (WPP) in advance. This
presents no problem to producers that receive a fixed feed-in tariff
for the produced electricity. However, subsidies have a fixed expiry
date, mostly 12–15 years, after which WPPs become non-subsi-
dized producers that need to participate in electricity markets.
However, energy trading in electricity markets involves high risk
to WPP owners due to imbalance costs.
In order to lower the risk of the mismatch between the sold and
delivered electricity, a WPP can be combined with a dispatchable
power plant. One option is the joint operation with a quick re-
sponse Conventional Power Plant (CPP), able to cover the fluctua-
tions in WPP output. Another option is to use a Pumped Hydro
Storage Plant (PHSP) which, besides providing flexibility to WPP

0306-2619/$ - see front matter Published by Elsevier Ltd.

http://dx.doi.org/10.1016/j.apenergy.2012.12.077
 H. Pandžić et al. / Applied Energy 105 (2013) 282–292 283

Nomenclature

Acronyms Ldown,min Parameter equal to min {T, [gdown,min  gdown,init] -

CPP Conventional Power Plant  [1  gonoff]}, which is the number of time periods that
EPEX European Power EXchange the CPP has to be down from the beginning of the plan-
PHSP Pumped Hydro Storage Plant ning horizon (h)
VPP Virtual Power Plant Lup,min Parameter equal to min {T, [gup,min  gup,init]  gonoff},
WPP Wind Power Plant which is the number of time periods that the CPP has
to be up from the beginning of the planning horizon (h)
Indices rdc Ramp-down limit of the CPP (MW/h)
j Index of CPP production blocks, running from 1 to nj ruc Ramp-up limit of the CPP (MW/h)
p Index of day-ahead market price scenarios, running storage Equivalent energy capacity of the PHSP upper basin
from 1 to np (MW h)
rdown(t) Index of down-regulation price scenarios, running from SUCc CPP start-up cost (Euro)
1 to ndown
r kp(t) Electricity price in the day-ahead market in time period
rup(t) Index of up-regulation price scenarios, running from 1 t and day-ahead market price scenario p (Euro/MW h)
up
to nr g PHSP system efficiency factor
t Index of time periods, running from 1 to T pp Probability of the pth day-ahead market price scenario
w Index of WPP output scenarios, running from 1 to nw pdown
r Probability of the rth down-regulation price scenario
pup
r Probability of the rth up-regulation price scenario
Constants pw Probability of the wth WPP production scenario
gc CPP capacity (MW) wrdown ðtÞ Down-regulation price ratio in time period t
gcj Size of the jth production block of the CPP supply cost wrup ðtÞ Up-regulation price ratio in time period t
function (MW)
gc CPP minimum power output (MW) Variables
down
gdown,init Time that the CPP has been down before the beginning bmwp ðtÞ
of the planning horizon (h) Power sold in the balancing market (MW)
up
gdown,min CPP minimum down time (h) bmwp ðtÞ Power purchased in the balancing market (MW)
gonoff CPP on–off status prior to the beginning of the planning C cwp ðtÞ Total cost of the CPP electricity production (Euro)
horizon (equal to 1 if gup,init > 0, and 0 otherwise) g cwp ðtÞ CPP total power production (MW)
gup,init Time that the CPP has been up before the beginning of g cwpj ðtÞCPP power production from block j (MW)
the planning horizon (h) g pwp ðtÞ PHSP pumping power (MW)
gup,min CPP minimum up time (h) g twp ðtÞ PHSP turbine power (MW)
gp Pumping capacity of the PHSP (MW) Gwp(t) Power sold (if positive) or purchased (if negative) in the
gt Turbine capacity of the PHSP (MW) day-ahead market (MW)
gw(t) WPP power output in time period t and WPP production storagewp(t) Energy stored in the upper basin of the PHSP at the
scenario w (MW) end of time period t (MW)
k0 Fixed cost of the CPP (Euro) ucwp ðtÞ Binary variable equal to 1 if the CPP is producing elec-
kj Marginal cost associated with the jth production block tricity and 0 otherwise
of the CPP supply cost function (Euro/MW h) v cwp ðtÞ Binary variable equal to 1 if the CPP is started up at the
beginning of the time period, and 0 otherwise

operation, also moves electricity delivery from low electricity price
hours to high electricity price hours. Results show that including
PHSP is an effective way to integrate intermittent renewable en-
ergy sources while improving the economic operation of a system
[1].
The concept of combining different generation technologies into
a single-acting unit in an electricity market is usually referred to as
a Virtual Power Plant (VPP). This coordinated cluster of generators
performs better in an electricity market than independent genera-
tors. Furthermore, the heterogenous generator system increases
the overall operation flexibility, often undermined by intermittent
sources, such as wind power.
1.2. Sources of uncertainty
When considering a VPP optimal market offering problem, there
are two sources of uncertainty. The first one is renewable genera-
tion, i.e., the WPP, and the second one is market prices. Namely,
market prices are known only after all producers and consumers
submit their selling and bidding curves, respectively. In order to
appropriately address these uncertainties a rigorous stochastic
programming framework is used. Uncertain parameters are mod-
eled by a set of finite outcomes, i.e. scenarios, based on historical
data.
1.3. Literature review
The technical literature is rich in methods and tools to deter-
mine the optimal offering strategy of a conventional power pro-
ducer in an electricity market [2]. As an example, the authors in
[3] propose a mixed integer model to compute the optimal re-
sponse of a thermal CPP to electricity spot prices. Market hourly
prices in this model are considered known, and the thermal pro-
ducer is assumed to be a price taker.
Wind producer offering models are, on the one hand, less com-
plex since they do not include generation or start-up costs, ramp-
ing constraints, or minimum up/down-time constraints. On the
other hand, wind forecast uncertainty, which leads to imbalance
penalties, calls for a stochastic offering model. The role of the wind
forecast information is examined in [4]. A method for WPP trading
in short-term electricity markets using Markov probabilities,
which results in reduced imbalance costs, is proposed in [5]. A lin-
ear programming technique for WPP producers offering electricity
in a market with multiple trading stages is presented in [6]. In [7]
the authors conclude that WPP offering strategies derived by
284 H. Pandžić et al. / Applied Energy 105 (2013) 282–292

stochastic programming generally outperform WPP offering In order to keep the model linear, the CPP fuel cost function
strategies based on forecasts. is modeled using a piecewise linear approximation. The PHSP is
The risk of failing to comply with the energy schedule settled in considered to pump water into a lossless upper basin. The
the day-ahead market becomes much lower if the WPP is com- lower basin is assumed to always contain enough water to be
bined with a dispatchable power plant. The problem of the joint pumped.
market participation of a WPP and a PHSP is addressed in [8]. Following current practice in European markets, a dual pricing
The optimization model is formulated as a two-stage stochastic system for the balancing market is considered in such a way that
programming problem in which the day-ahead market prices and the VPP can only purchase balancing energy at a price higher than
the wind generation are considered as random parameters. The in the day-ahead market (up-regulation). Similarly, VPP can only
case study shows that the coordinated WPP–PHSP offering strategy sell electricity in the balancing market at a price lower than in
provides higher profit compared to the uncoordinated operation the day-ahead market (down-regulation).
mode. Angarita and Usaola [9] also analyzes the economic perfor-
mance of a WPP–PHSP system. The authors estimate that, depend- 2.2. Model description
ing on the penalty values, the combined operation may avoid up to
50% of the penalties. A method for minimizing the imbalance pen- The proposed model may be understood as a three-stage sto-
alty risks associated with the WPP output uncertainty, in case of a chastic programming model in as much as:
joint WPP–PHSP model, is presented in [10]. A neural network ap-
proach is used in [11] to set the self-scheduling strategy of the WPP 1. The VPP owner must submit its offering curve in the day-ahead
and PHSP. This model considers day-ahead, spinning and regula- market before the WPP output and the prices in both the day-
tion reserve markets. ahead and balancing markets become known (first stage).
The authors in [12] address the problem of wind–thermal coor- 2. The VPP owner must decide on the operation of its CPP and
dinated trading using stochastic mixed-integer programming. The PHSP once the WPP output and the prices in the day-ahead
optimal offering strategy is obtained by maximizing total expected market become known, but before knowing the balancing mar-
profits while controlling trading risks. For risk control, a weighted ket prices (second stage).
term of the conditional value at risk is included in the objective 3. The balancing market prices become known (third stage).
function.
The offering problem faced by a VPP in a joint market of energy However, no decision is made at the third stage and therefore,
and spinning reserve service is presented in [13]. The proposed the stochastic balancing market prices can be replaced by their
model, which is non-linear, is solved using a genetic algorithm. A expectations. As a result, the proposed model boils down to a clas-
mixed-integer linear programming model which maximizes the sical two-stage stochastic programming problem.
VPP mid-term profit in the day-ahead market, subject to long-term It is important to notice that the operation of the CPP and PHSP
bilateral contracts and technical constraints, is presented in [14]. is assumed to be determined once the WPP output becomes
known. Therefore, no decision is made in between the disclosure
of the day-ahead market prices and the WPP output.
1.4. Contributions and paper layout
Likewise, note that our model guarantees a feasible operation of
the CPP and PHSP for every plausible realization of the wind power
Whilst the papers described in the previous subsection mostly
production.
tackle either the WPP–PHSP or the WPP–CPP market offering prob-
lem, this paper incorporates all three types of electricity genera-
2.3. Model formulation
tors: an intermittent energy source, an energy storage and a
conventional source into a single model. Additionally, the pre-
The VPP profit maximization model is formulated as follows:
sented model considers both the day-ahead and the balancing
Maximize
market. In the day-ahead market the VPP is treated as a price-ta-
ker, and in the balancing market as a deviator, i.e. as a passive np down
nX nr
up
h 
X
T X
nw X r X
agent. This means that the VPP uses the balancing market to cor- pw pp pdown pup down
kp ðtÞ Gwp ðtÞ þ bmwp ðtÞ  wdown ðtÞ
r r r
rect its energy deviations with respect to its day-ahead schedule. t¼1 w¼1 p¼1 rdown ¼1 r up ¼1
The proposed stochastic decision-making framework is rigorous  i
up
 bmwp ðtÞ  wup
r ðtÞ  C cwp ðtÞ  SUCc  v cwp ðtÞ ð1aÞ
yet computationally efficient. Its outputs are hourly offering curves
to be submitted to the day-ahead market.
subject to:
A comprehensive real-world case study is presented and its re-
sults are analyzed. ucwp ðtÞ 2 f0; 1g; 8t 6 T; w 6 nw ; p 6 np ð1bÞ
This paper is laid out as follows. Section 2 provides the model
assumptions and description, as well as the mathematical formula- v cwp ðtÞ 2 f0; 1g; 8t 6 T; w 6 nw ; p 6 np ð1cÞ
tion of the model. Application of the presented model to a realistic
case study, with appropriate result description and computational
ucwp ðtÞ  ucwp ðt  1Þ 6 v cwp ðtÞ; 8t 6 T; w 6 nw ; p 6 np ð1dÞ
burden report, is provided in Section 3. Section 4 summarizes rel-
evant conclusions. nj
X
g cwp ðtÞ ¼ g cwpj ðtÞ; 8t 6 T; w 6 nw ; p 6 np ð1eÞ
j¼1
2. Model
nj
2.1. Assumptions X
C cwp ðtÞ ¼ k0  ucwp ðtÞ þ kj  g cwpj ðtÞ; 8t 6 T; w 6 nw ; p
j¼1
The considered VPP consists of a WPP, a CPP and a PHSP. Since
the WPP power output is stochastic, it is modeled using historical
6 np ð1fÞ
scenarios. Historical data is also used to build stochastic trees mod-
eling prices in the day-ahead and balancing markets. g c  ucwp ðtÞ 6 g cwp ðtÞ 6 gc  ucwp ðtÞ; 8t 6 T; w 6 nw ; p 6 np ð1gÞ
 H. Pandžić et al. / Applied Energy 105 (2013) 282–292 285

c
rd 6 g cwp ðtÞ  g cwp ðt  1Þ 6 ruc ; 8t 6 T; w 6 nw ; p 6 np ð1hÞ Eqs. (1i)–(1k) enforce the minimum down time constraints [16].
Constraint (1i) forces the CPP to stay off for the appropriate num-
Ldown;min
X ber of hours if in hour 0 it has been off for fewer hours than the
ucwp ðtÞ ¼ 0; 8w 6 nw ; p 6 np ð1iÞ minimum down time. This constraint is enforced only if Ldownmin
t¼1 P 1. Constraints (1j) enforce the minimum down time for all com-
binations of consecutive hours of size gdown,min. Constraints (1k)
X 1
tþg down;min    enforce the minimum down time for the last gdown,min  1 h. Eqs.
1  ucwp ðttÞ P g down;min  ucwp ðt  1Þ  ucwp ðtÞ ; (1l)–(1n) work in a similar way as Eqs. (1i)–(1k), imposing mini-
tt¼t
mum up time constraints.
8Ldown;min þ 1 6 t 6 T  g down;min þ 1; w 6 nw ; p 6 np ð1jÞ Constraints (1o) and (1p) are PHSP turbine and pumping capac-
ity limits, respectively. Constraints (1q) are used to define the
T 
X   available energy stored at the end of each time period, while con-
1  ucwp ðttÞ  ucwp ðt  1Þ  ucwp ðtÞ straints (1r) are upper basin energy storage limits. Constraints (1s)
tt¼t
are energy balance equations. They state that the summation of the
P 0; 8T  g down;min þ 2 6 t 6 T; w 6 nw ; p 6 np ð1kÞ electricity produced by WPP, CPP, PHSP and the electricity pur-
chased in the up-regulation market has to be equal to the electric-
up;min
LX   ity sold in the day-ahead market (negative if purchased), plus the
1  ucwp ðtÞ ¼ 0; w 6 nw ; p 6 np ð1lÞ electricity used to pump water in the PHSP upper basin and the
t¼1 electricity sold in the down-regulation market. Variable g pwp ðtÞ is
divided by g, which is a PHSP whole efficiency factor. This reflects
tþg up;min
X 1 the fact that it is possible to convert back to electricity only a por-
ucwp ðttÞ P g up;min  v ðtÞcwp ; 8Lup;min þ 1 6 t tion of the electricity used to pump the water to the upper basin.
tt¼t
Variable Gwp(t) provides offers to the day-ahead market and is a
6 T  g up;min þ 1; w 6 nw ; p 6 np ð1mÞ first-stage variable.
Eq. (1t) are non-anticipativity constraints and reflect the fact
T 
X  that information on stochastic parameters cannot be anticipated.
ucwp ðttÞ  v cwp ðtÞ P 0; 8T  g up;min þ 2 6 t 6 T;
In other words, these constraints are necessary to model the fact
tt¼t
that only one bidding curve can be submitted to the day-ahead
w 6 nw ; p 6 np ð1nÞ
market for each hour, irrespective of the WPP output. Constraints
(1u) ensure that the VPP bidding curve is monotonously non-
g twp ðtÞ 6 gt ; 8t 6 T; w 6 nw ; p 6 np ð1oÞ decreasing. Op(t) denotes the order of price scenario p in each hour
t. The price scenarios are ordered in each hour from the lowest
g pwp ðtÞ 6 gp ; 8t 6 T; w 6 nw ; p 6 np ð1pÞ price value to the highest one.
In this model, the VPP can purchase energy in the balancing
storagewp ðtÞ ¼ storagewp ðt  1Þ þ g pwp ðtÞ  g twp ðtÞ; 8t 6 T; market at a price higher than the day-ahead market price (up-reg-
ulation) and sell energy at a price lower than the day-ahead market
w 6 nw ; p 6 np ð1qÞ
price (down-regulation). Thus, the following stands:

0 6 storagewp ðtÞ 6 storage; 8t 6 T; w 6 nw ; p 6 np ð1rÞ wrup ðtÞ P 1; 8r up ðtÞ 6 nup

r ðtÞ; 8t 6 T ð2Þ

up
g w ðtÞ þ g cwp ðtÞ þ g twp ðtÞ þ bmwp ðtÞ wrdown ðtÞ 6 1; 8rdown ðtÞ 6 ndown
r ðtÞ; 8t 6 T ð3Þ
g pwp ðtÞ down
¼ Gwp ðtÞ þ þ bmwp ðtÞ; 8t 6 T; w 6 nw ; p 6 np ð1sÞ
g 3. Case study

Gw1 p ðtÞ ¼ Gw2 p ðtÞ ¼    ¼ Gwn p ðtÞ; 8t 6 T; p 6 np ð1tÞ 3.1. VPP description

Gwp ðtÞ  Gwp ðtÞ 6 0; 8t 6 T; 8p; p : Op ðtÞ þ 1 ¼ Op ðtÞ
The objective function (1a) to be maximized is an expected
profit function that considers the electricity sold/purchased in
the day-ahead market, sold in the down-regulation market, and
purchased in the up-regulation market, as well as the production
and start-up cost of the CPP. Constraints (1b) and (1c) are binary
variable declarations. Binary variable ucwp ðtÞ is equal to 1 if CPP is
producing electricity in time period t, WPP production scenario w
and day-ahead market price scenario p, and 0 otherwise. Binary
variable v cwp ðtÞ is equal to 1 if CPP is started-up in time period t,
WPP production scenario w and day-ahead market price scenario
p, and 0 otherwise. Constraints (1d) are logical expressions used
to set the appropriate value to the CPP start-up binary variable
v cwp ðtÞ [3,15]. Constraints (1e) state that the CPP total power output
is equal to the summation of all production blocks j (the CPP sup-
ply cost function is modeled as a piecewise linear approximation),
while constraints (1f) define the CPP production costs. Constraints
(1g) define the CPP output limits regarding its minimum power
output and capacity, and constraints (1h) enforce its ramp limits.
ð1uÞ The VPP presented in this case study consists of a WPP, a PHSP
and a combined cycle gas turbine CPP. The rated capacity of the
WPP is 9.6 MW. The equivalent energy capacity of the PHSP upper
basin is set to 40 MW h. The turbine and pumping regime capaci-
ties are 8 and 6 MW, respectively. The upper basin of PHSP is
empty at the beginning of the day under study, and there are no
constraints on the water level of the upper basin at the end of
the day. The efficiency of the PHSP system is set to 75%.
The CPP is based on a TAU5670 turbine [17] with 5.67 MW
rated capacity. Its technical minimum is 2.5 MW, and its both up
and down ramp limits are 3 MW/h. The CPP cost curve is approxi-
mated using a 3-block piecewise linear approximation. Both mini-
mum up and down times are 2 h. It is considered that the CPP has
been off for 1 h prior to the beginning of the study horizon.
3.2. Uncertain data
Modeling the WPP output, or market prices, is outside the scope
of this paper. A review of WPP generation prediction techniques is
286 H. Pandžić et al. / Applied Energy 105 (2013) 282–292
Fig. 1. WPP output scenarios – winter Wednesdays from March 31, 2010 to January 11, 2012.
available in [18], while market price forecasting techniques are
broadly described in [19]. In this case study we compute the opti-
mal offering strategy of the VPP for a winter Wednesday. Offering
strategiew for any other day of the week or season, though, can be
obtained in a similar manner. Additionally, state-of-the-art fore-
casting machinery may be used to generate the input scenario
set instead of resorting to historical scenarios.
The WPP scenarios considered are based on the real-world data
collected from a WPP with installed capacity of 9.6 MW operating
in coastal Croatia. The gathered data correspond to 25 winter
Wednesdays (December–March) ranging from March 31, 2010 to
January 11, 2012. All scenarios are assumed equiprobable, i.e.,
the probability of each scenario is 0.04. These scenarios are pro-
vided in Fig. 1, showing the wide range of wind production levels
used in the case study.
Real-world market price scenarios are collected from the EPEX
market historical data [20]. Figs. 2 and 3 show 25 equiprobable
day-ahead market and balancing market price scenarios, respec-
tively. These historical data also reflect winter Wednesdays rang-
ing from March 31, 2010 to January 11, 2012. Thus, they are
contemporaneous with the WPP output data. It is important to
note that it is not possible to distinguish between up and down-
regulation prices in Fig. 3. This is so because a specific balancing
market price can be either up or down-regulation price depending
on the realization of the day-ahead market price scenario.
4. Results and discussion
The expected hourly profits and cumulative expected profit of
the VPP are provided in Fig. 4. The hourly profits in the first 7 h
are negative. Since the day-ahead market prices are lowest during
these hours in practically all scenarios, the electricity produced by
the WPP and CPP (if operating) is used for pumping water to the
PHSP upper basin. Since CPP operation increases expenditures,
and the produced electricity is generally used for pumping water,
the VPP incurs losses amounting to Euro 1159 in the first 7 h of
the day. In the 8th hour the expected day-ahead market prices in-
crease and in most scenarios water is no longer pumped to the
PHSP upper basin. The highest profit is obtained in hour 19, which
exhibits the highest market price in most scenarios. The overall ex-
pected profit throughout the day is Euro 4479. The electricity sold
in the day-ahead market in average is 130 MW h, which brings the
average profit on sold electricity to 34.5 Euro/MW h.
Given that the expected profit resulting from implementing the
expected-value solution is Euro 4156, the value of the stochastic
solution (VSS) is Euro 323, or 7.8 % in relative terms [21].
Fig. 5 shows VPP day-ahead market offering curves for selected
hours. In hour 2 the electricity is purchased in the market if the
price is lower than 47 Euro/MW h. The highest amount of pur-
chased electricity (7.88 MW h) is obtained at a price of 0.05 Euro/
MW h. In hour 7 the day-ahead market price threshold for selling
electricity is around 48.5 Euro/MW h. At prices lower than this,
electricity is purchased in the day-ahead market. In hour 10 elec-
tricity is solely sold in the day-ahead market, and the correspond-
ing offering curve is similar to that of hour 17. The highest amounts
of sold electricity are achieved in hour 19, in which the highest
prices occur. Regardless of the low prices, hour 24 is solely used
for electricity selling since the storage is emptied at the end of
the optimization period.
The electricity sold in the day-ahead market for each of the 25
day-ahead market price scenarios is provided in Figs. 6–8. The VPP
activity in the market is in direct correlation with the expected
market price. Namely, the VPP sells lower amounts of electricity
when the price is low, and higher amounts of electricity when
the price is high. The largest amount of electricity is sold in hour
19. A sudden drop in sold electricity happening in hours 13 and
14 for one of the market price scenarios in Fig. 7 (black dotted
curve) is the result of the distinctive shape of the respective price
curve, characterized by relatively low prices during the early after-
noon (around 45 Euro/MW h in hours 13 and 14) and high prices in
the late hours (prices in hours 21–24 are 73, 63, 65 and 56 Euro/
MW h, respectively).
In order to fully understand the behavior of the comprehensive
stochastic model presented, the following scenarios are analyzed
in detail:
1. low WPP production, low day-ahead market prices;
2. low WPP production, high day-ahead market prices;
3. medium WPP production, medium day-ahead market prices;
4. high WPP production, low day-ahead market prices;
5. high WPP production, high day-ahead market prices.
For the sake of clarity, we use the following conventions in
Figs. 9–13:
1. WPP generation is always positive;
2. PHSP power generation is positive, and its consumption is
negative;
3. CPP generation is always positive;
4. a positive value of the balancing market curve displays electric-
ity purchased, and a negative one, electricity sold in the balanc-
ing market;
 H. Pandžić et al. / Applied Energy 105 (2013) 282–292 287

Fig. 2. Day-ahead market price scenarios – winter Wednesdays from March 31, 2010 to January 11, 2012.

Fig. 3. Balancing market price scenarios – winter Wednesdays from March 31, 2010 to January 11, 2012.

Fig. 4. Hourly profits and cumulative profit of a VPP.

5. a positive value of the day-ahead market curve displays elec-
tricity sold, and a negative one, electricity purchased in the
day-ahead market.
It is important to note that reverse sign criteria are used
for day-ahead and balancing markets. This is so because the
day-ahead market offer is equal to the summation of all the other
energy variables. Additionally, this sign criteria improves graph
clarity.
Fig. 9 shows the electricity produced by the WPP and CPP, the
electricity produced/consumed by the PHSP, as well as the electric-
ity purchased/sold in the balancing and day-ahead markets in the
case of a low-wind–low-price scenario. In the first 7 h, the PHSP
electricity consumption is settled by purchases in the day-ahead
market, which is the result of the low day-ahead market price
scenario.
In these first 7 h, the balancing market activity mimics the WPP
production. This means that practically the whole WPP production
288 H. Pandžić et al. / Applied Energy 105 (2013) 282–292

Fig. 5. VPP day-ahead market offering curves for hours 2, 7, 10, 17, 19, and 24.

Fig. 6. Electricity sold in the day-ahead market for the first eight scenarios.

Fig. 7. Electricity sold in the day-ahead market for the second eight scenarios.

is sold in the balancing market. It is important to note that the elec- WPP production, in some scenarios the electricity is sold in the bal-
tricity sold in the balancing market brings less profit than the elec- ancing market instead of in the day-ahead market. Although this
tricity sold in the day-ahead market. However, since the offering has a negative impact on the outcome of the given scenario, the
curve submitted to the day-ahead market is independent of the overall performance of the model is optimal.
 H. Pandžić et al. / Applied Energy 105 (2013) 282–292 289

Fig. 8. Electricity sold in the day-ahead market for the last nine scenarios.

Fig. 9. Electricity produced by the WPP and the CPP, electricity produced/consumed by the PHSP and electricity purchased/sold in the balancing market and day-ahead
market in a low-wind–low-price scenario.

Fig. 10. Electricity produced by the WPP and the CPP, electricity produced/consumed by the PHSP and electricity purchased/sold in the balancing market and day-ahead
market in a low-wind–high-price scenario.
290 H. Pandžić et al. / Applied Energy 105 (2013) 282–292

Fig. 11. Electricity produced by the WPP and the CPP, electricity produced/consumed by the PHSP and electricity purchased/sold in the balancing market and day-ahead
market in a medium-wind–medium-price scenario.

Fig. 12. Electricity produced by the WPP and the CPP, electricity produced/consumed by the PHSP and electricity purchased/sold in the balancing market and day-ahead
market in a high-wind–low-price scenario.

The PHSP stops pumping in hour 8 and it produces electricity in
hours 12, 13, and 18–20. All the electricity produced in hours 12,
13 and 20 is sold in the balancing market. Electricity produced in
hour 18 is mostly sold in the day-ahead market (approximately
6 MW h), while the rest (approximately 4 MW h) is sold in the bal-
ancing market. In hour 19 all the electricity produced by the PHSP
system is sold in the day-ahead market.
The electricity purchased in the day-ahead market in hours 8
and 15 is sold in the balancing market. Since practically all balanc-
ing market prices in these hours are higher than the day-ahead
market prices, the electricity is sold at the same price as it is pur-
chased, without incurring any economical losses. The largest
amount of electricity sold in the day-ahead market is 10.5 MW h
in hour 19.
Due to low day-ahead market prices the CPP does not operate in
this scenario.
The case of a low-wind–high-price scenario is illustrated in
Fig. 10. The PHSP pumps water during the first 7 h, which is used
to produce electricity in hours 13, and 17–20. Due to operation
costs, the CPP is started in hour 7 and stays on-line for the rest
of the day.
As a result of high day-ahead market prices, large amounts of
electricity are sold in the day-ahead market, while the balancing
market is only used to purchase electricity. The largest
amount of electricity sold in the day-ahead market is
25.4 MW h in hour 21. This electricity is largely obtained from
the balancing market.
Fig. 11 depicts results in the case of a medium-wind–medium-
price scenario. Again, the PHSP pumps water in the first 7 h. Some
of this water is used to produce electricity in hours 9–11. The
upper basin is additionally charged during the 17th hour to accom-
modate the spike in the WPP output. The PHSP is fully discharged
during hours 19 and 20. The CPP is not started up in this scenario.
The balancing market is used for both selling and purchasing
electricity, settling imbalances between produced electricity and
electricity traded in the day-ahead market.
Due to insufficient wind production, electricity is purchased in
the day-ahead market during the first 6 h. The morning selling
 H. Pandžić et al. / Applied Energy 105 (2013) 282–292
Fig. 13. Electricity produced by the WPP and the CPP, electricity produced/consumed by the PHSP and electricity purchased/sold in the balancing market and day-ahead
market in a high-wind–high-price scenario.
peak occurs in the 9th hour (17.5 MW h), and the evening peak in
the 20th hour (19.1 MW h).
Fig. 12 depicts the relevant plant generations and the electric-
ity sold/purchased in day-ahead and balancing markets in the
case of a high-wind–low-price scenario. Due to the high WPP pro-
duction and low day-ahead market prices, the CPP stays shut
throughout the day. The pumping regime of the PHSP lasts for
the first 7 h, which is covered by day-ahead market purchases.
On the other hand, the WPP output is sold in the balancing mar-
ket. The PHSP upper basin is discharged in hours 12, 13, and 18–
20.
The balancing market is used solely for selling electricity be-
cause balancing market prices are generally higher than day-ahead
market prices. Electricity sold in the balancing market reaches
16.8, 18.8, and 19.4 MW h in hours 8, 12, and 20, respectively.
Trading in the day-ahead market results in 50 MW h of pur-
chased electricity overall. The profit is made in the balancing mar-
ket, in which 223.8 MW h are sold.
The case of a high-wind–high-price scenario is depicted in
Fig. 13. During the first 6 h the day-ahead and balancing market
trading focuses on achieving the 8 MW needed to operate the PHSP
in its pumping regime. Due to high day-ahead market prices, the
CPP is started up in the 7th hour and it runs at its full capacity until
hour 24, in which its output is reduced to 3 MW. Only a small por-
tion of PHSP upper basin is discharged in hour 12, while most of it
is discharged during the high-price evening hours, i.e. hours 17–20.
Electricity is sold in the balancing market only in the 6th hour,
while in all the other hours it is purchased in order to fulfill the
day-ahead electricity commitment. This results in a large amount
of electricity sold in the day-ahead market (329 MW h), while in
the balancing market 50 MW h are purchased. Electricity sold in
the day-ahead market exceeds 25 MW h in each of the hours 17–
21.
The average amount of up-regulation electricity is 1.84 MW h,
and down-regulation electricity is 1.42 MW h, which brings the
average balancing market traded volume to 3.26 MW h. This
makes a mere 1.76% of the average day-ahead market volume
which is 185.70 MW h.
291
4.1. Computational burden
The case study is solved using CPLEX 12.1 under GAMS on a
2.93 MHz Quad Core processor with 256 GB of RAM. The required
computational time is about 27 min. The high computational time
is the result of the large number of scenarios that are used, as each
scenario involves two additional binary variables per hour. The
overall number of integer variables can be reduced using scenario
reduction techniques [22], which would result in a lower computa-
tional burden.
Another efficient way to cope with uncertain parameters is by
means of robust optimization, as described in [23]. This approach
requires fine tuning of the robustness of the solution, but reduces
the number of integer variables. Tackling market price uncertainty
using robust optimization technique is presented in [24].
5. Conclusions
The proposed daily offering model is intended to help a VPP
owner to maximize its short-term expected profit. The majority
of the trading takes place in the day-ahead market, while the bal-
ancing market makes less than 2% of the revenue in the considered
case study.
The following conclusions are in order:
1. The CPP starting-up decisions depend only on the day-ahead
market prices. In case of high day-ahead market prices, the
CPP starts operating in the morning and stays on until the late
evening.
2. The PHSP operation is fairly independent on the WPP output,
CPP output, and even the day-ahead market prices. In most sce-
narios, the day-ahead market price difference throughout the
day is sufficient for the PHSP to make a profit by pumping water
during the night hours and producing electricity in the morning
and evening peak hours. In case of a high price spread or a vol-
atile WPP output, the PHSP may additionally charge the upper
basin in the late afternoon in order to increase the production
level during evening peak hours.
292 H. Pandžić et al. / Applied Energy 105 (2013) 282–292
3. In case of low day-ahead market price scenarios, the balancing
market is used mostly for selling electricity. On the other hand,
in case of high day-ahead market price scenarios, the balancing
market is mostly used for purchasing electricity. This is so
because in the case of low day-ahead market price scenarios
the expected balancing market prices in this case study are gen-
erally higher than the day-ahead market prices, and vice versa.
4. WPP output does not influence significantly the PHSP or the CPP
operation. However, higher WPP output reduces the off-peak
electricity purchased in the market.
5. Finally, we conclude that the VPP association results in higher
expected profits while slightly ‘‘disturbing’’ the individual oper-
ation of individual plants integrated in the VPP association.
The computational burden of the proposed model is significant,
which is the characteristic of most stochastic models. However,
using a moderate number of scenarios keeps the computational
time in acceptable levels and compatible with the day-ahead mar-
ket framework.
The risk of the actual profit being well below the expected one
may be tackled either by employing a robust optimization ap-
proach, as described in [23], or the conditional value at risk (CVaR),
as described in [25]. Both of these metrics may be linearized and
incorporated in the proposed model.
The model can be further extended to consider that the VPP
producer is able to influence market prices. In that case, the sto-
chastic programming formulation of the offering problem should
be upgraded by explicitly modeling the market clearing process
as in [26,27]. However, in that case, data for all market participants
are needed.
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