Market-Based Generation Planning with Carbon Target

In the era of the deregulated electricity market, the necessity and urgency for reducing carbon emissions are broadly recognized, which further drives the market-based generation planning towards a low-carbon transition. In this context, this paper proposes a multi-period bi-level optimization problem, where the upper-level problem indicates the generation company pursuing maximized profit and the lower-level problem depicts the market clearing process with carbon limitations. To solve it, this bi-level optimization problem is first replaced with its mathematical program with equilibrium constraints (MPEC) model and then transformed into a mixed integer linear program (MILP) with Karush-Kuhn-Tucker (KKT) optimality conditions and strong duality theory. Case studies are carried out to evaluate the impact of carbon targets on market-based generation investment decisions and business cases.