Hybrid scenario generation method for stochastic virtual bidding in electricity market

Stochastic optimization can be used to generate optimal bidding strategies for virtual bidders in which the uncertain electricity prices are represented by using scenarios. This paper proposes a hybrid scenario generation method for electricity price using a seasonal autoregressive integrated moving average (SARIMA) model and historical data. The electricity price spikes are first identified by using an outlier detection method. Then, the historical data are decomposed into base and spike components. Next, the base and spike component scenarios are generated by using the SARIMA- and historical data-based methods, respectively. Finally, the electricity price scenarios are obtained by combining the base and spike component scenarios. Case studies are carried out for a virtual bidder in the PJM electricity market to validate the proposed method. The optimal bidding strategies of the virtual bidder are generated by solving a stochastic optimization problem using the electricity price scenarios generated by the proposed method, the SARIMA method, and a historical data-based method, respectively. Case study results show that the proposed method is better than the SARIMA method in preserving statistical properties of the electricity price in the generated scenarios and is better than the historical data-based method in predicting the future trend of the electricity price and, therefore, can help the virtual bidder earn more profit in the electricity market.