Applying Multi-period Newsvendor Model to Load Serving Entity’s Procurement Problem with DR/Batteries

The problem of load serving entity (LSE) procuring electricity from the day-ahead market to serve the demand of consumers is considered. One of the major risks the LSE face is the quantity risk due to the volatile demand/renewable generation. Dispatchable demand response (DR) or batteries are effective leverages to hedge against such a risk. This paper presents a general procurement model which aims to maximize the expected profit of LSE under quantity risks based on the idea of multi-period Newsvendor model. Numerical results have shown the efficiency and adaptability of proposed model. Our analysis suggests that by smartly making procurement decision in DAM and adopting DR/batteries as hedging instrument, LSE can significantly improve its profit.