Strategic bidding in electricity generation supply markets

The authors formulate a general framework of a competitive electricity generation supply market (CEM), embodying the salient attributes of the Poolco concept. This framework serves two principal purposes: to solve the selection by the CEM operator of the winners in a sealed bid auction for the right to serve load in each period of the auction horizon; and to determine the profit-maximizing strategic bids of a generation supplier. The formulation represents the physical and operating considerations of the electric generation system, the multi-period nature of the auction as well as the market economics. The resulting large-scale nonlinear programming model has a structure that is effectively exploited for solution by Lagrangian relaxation. Under conditions of a perfectly competitive market, the strategic bids of a player can be derived analytically. Numerical results illustrate the effectiveness of the strategic bids. Directions for future research are discussed.