Arbitrage Strategy of Virtual Power Plants

in Energy Market
a b
Arazel Frey C. Bughaw
Electrical Engineering Department
College of Engineering and Technology
Mindanao State University - Iligan
Institute of Technology
Andres Bonifacio Ave, Iligan City, 9200
Lanao Del Norte
arazelfrey.bughaw@g.msuiit.edu.ph
Lucille Kate A. Clamotcha
Electrical Engineering Department
College of Engineering and Technology
Mindanao State University - Iligan
Institute of Technology
Andres Bonifacio Ave, Iligan City, 9200
Lanao Del Norte
lucillekate.clamotcha@g.msuiit.edu.ph
c
Mark Loyd M. Colonia
Electrical Engineering Department
College of Engineering and Technology
Mindanao State University - Iligan
Institute of Technology
Andres Bonifacio Ave, Iligan City, 9200
Lanao Del Norte
markloyd.colonia@g.msuiit.edu.ph

Abstract— A Virtual Power Plant (VPP) is considered as a In the power markets, energy must be administered so it
network of distributed, medium-scale power generating units can be as cheap and reliable as possible. Through VPP, this
that acts in the market as a single entity. The main objective of idea of systematic management of distributed resources can
VPP is to discharge the load on the grid by smartly allocating be attained leading to cost reductions and an enhanced
the load power produced by individual units during periods of
controllability.
peak load. Actually, there are many optimal strategies that
exist in trying to make the most of the VPPs profit, but, in this
paper, the researchers propose an arbitrage strategy to those The main objective of VPPs is to obtain profit
VPPs taking part in the energy market. Wherein, the chosen maximization by recognizing arbitrage opportunities and
model maximizes the VPP’s profit (revenue minus cost) optimal bidding in power markets. Wherein, arbitrage is
considering arbitrage opportunities. Furthermore, essentially the process of earning riskless profits by taking
transmission network topology, security constraints and the advantage of differential pricing for the same physical asset
supply-demand balancing are considered to guarantee a and security, further, it is an investment tactic that takes
reliable VPP operation in this study. The expected results advantage of price differences of the same commodity in the
would consist of a single optimal bidding profile and a schedule
market [2,3]. To be able to gain profit, VPP should evaluate
for managing the active and reactive power to those playing a
part in the energy markets. the arbitrage opportunities and optimal bidding strategies in
the energy markets.
Keywords—Virtual Power Plant (VPP), arbitrage, supply-
demand balancing So far, there have been a lot of researches regarding the
study of VPP and the various strategies that would help
I. INTRODUCTION maximize its profits. In [1], an idea for the presentation of
VPP as a main sector of power system networks in the
The rapid development of Distributed Energy Resources
energy market is provided and simulated using Supply
(DERs) and its continuous progression towards a more
Function Equilibrium (SFE). In [2], a two stage model for
advanced electricity market still demands more energy
decision making of Technical Virtual Power Plants (TVPPs)
management strategies to handle both technical and
is proposed wherein the first part involves the minimization
economic issues. DER is expanding all over the world,
of TVPP cost thru nonlinear programming and second, the
which is mainly associated with the requirement of a
strategic behavior of each supplier is represented via the
sustainable energy system with less environmental
SFE model. In [3], authors have used an arbitrage strategy
pollution, more varied energy resources, and an enhanced
of VPP participating in the energy and ancillary service (i.e.
energy efficiency. Electricity market players obtain
spinning reserve and reactive power services) markets. In
considerable benefits and costs in the electricity market with
[4], a concentrated approach on market aspects of operation
the incorporation of DERs. The advancement of electricity
of Distributed Generation (DG) is presented where a general
producers and users encourages the market to offer better
framework for future VPP is discussed. In [5], authors have
mechanisms and flexibility in their energy communities.
addressed on the bidding problem faced by a VPP in a joint
market of energy, spinning reserve service, wherein, the
DER units that are linked together and are operated as
proposed bidding strategy is a non-equilibrium model based
one unit is an idea mainly associated to Virtual Power Plant
on deterministic Price-Based Unit Commitment (PBUC)
(VPP). VPP simply described a technology based software
which takes supply-demand balancing constraint and
that consist of smart grids, but technically, it is a gathering
security constraints of VPP itself into account. In [6], a
of DER units that is dispersed among networks, wherein, it
Market-Based Virtual Power Plant (MBVPP) model is
is controllable as a whole generating system with a purpose
proposed which provides individual DER units the accesses
of trading electrical energy to provide system support
to the current electricity markets. In [7], a mathematical
services. Simultaneously, VPP also adds value to the new
formulation and implementation of the optimization model
generation plants and coordinates generation sources where
for VPPs is being dealt with. In [8], a numerical game
it accesses new markets, improves system reliability and
theoretic model to simulate the behavior of the generation
cost efficiencies of renewable and non-renewable sources.
firms and to compare the effects of both systems on the
market power of generators showed that financially, VPPs
are better for society. In [9], a virtual power plant consisting
of an intermittent source, a storage facility, and a
dispatchable power plant is being analyzed. In [10], a
probabilistic PBUC approach using Point Estimate Method
(PEM) is employed to model the uncertainty in the market
price and generation sources, for optimal bidding of a VPP
in a day-ahead electricity market. In [11], Genetic
Algorithm (GA) based technique for optimal dispatch of the
generators included in a VPP to participate in a day-ahead
market with profit maximization scheme is presented. In
[12], a decision-making framework for medium-term self-
scheduling of a VPP with the aim of exercising arbitrage
between two different trading floors, i.e., bilateral contracts
and the electricity market is presented. Meanwhile, in [13],
authors have considered on the problem of optimal bidding
for virtual trading in two-settlement electricity markets,
wherein a virtual trader aims to arbitrage on the differences
between day-ahead and real-time market prices. In [14],
authors showed that the financial traders’ effect on the
premium was limited by two barriers, first, arbitrageurs do
not have unlimited access to capital and second is that the
regulations imposed restrict the transactions.
In this paper, since it is concerned on considering
arbitrage opportunities of VPP by optimal bidding in
energy, particularly in the spinning reserve and reactive
power markets, thus, a model based on Security Constraints
Priced-Based Unit Commitment (SCPBUC) is proposed to
maximize the profit. The model is actually made up of three
kinds of arbitrage opportunities. First, VPP’s energy and
spinning reserve services is optimized thru Genetic
Algorithm (GA). Second, VPP fulfills bilateral contracts
with end customers and finally, VPP can purchase energy
when electricity prices are low and sell energy when
electricity prices are high. Nevertheless, the expected profit
of VPPs at the completion of this study will increase with
the use of arbitrage strategy.
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