Strategic Bidding and Scheduling in Reserve Co-optimized Based Electricity Spot Markets Victor Joel E. Francisco Philippine Electricity Market Corporation Pasig City, Philippines vjefrancisco@wesm.ph Allan C. Nerves Electrical and Electronics Engineering Institute University of the Philippines, Diliman Quezon City, Philippines anerves@eee.upd.edu.ph Abstract— In electricity spot markets, revenue of independent power producers (IPPs) is dependent on successful bidding strategies. This research establishes a model for strategic bidding and short-term generation scheduling in reserve co-optimized markets like the Philippine Wholesale Electricity Spot Market. The model, which is applicable to independent power producers, is based on the combination of security constrained economic dispatch and a probabilistic bidding model. The security constrained economic dispatch models fundamental price drivers in the market, and takes into account transmission network parameters, marginal loss factors and reserve co-optimization to solve schedules and nodal prices for energy and reserve. The bidding model then determines optimum bid prices for each trading interval, by maximizing the probability of a bid being cleared while at the same time capitalizing on positive returns from the market. A simulation tool is developed to implement the strategic bidding model where strategies are derived for various scenarios. The test system includes an independent power producer with corresponding energy and reserve offers for electricity market trading. Several bidding strategies, derived from the model are then presented and discussed. Keywords- strategic bidding; reserve co-optimized electricity market; security constrained economic dispatch; marginal loss factors; independent power producer I. INTRODUCTION The establishment of electricity spot-markets all over the world has been the trend in the deregulation of state-owned electric power industries. Electricity trading in successful electricity spot-markets has been seen to increase competitiveness and transparency in the electric power industry. Depending on the market design, electricity markets behave differently. In most cases, electricity is traded through the submission of bids and offer quantities and their corresponding prices. The market operator, which operates the central power pool, uses this information to calculate the optimal dispatch schedule and their corresponding spot prices. Normally in this type of market structure, the generation companies or independent power producers (IPPs) are primarily responsible for their own bids and offers. These companies must therefore have to deal with complex issues arising from the uncertainty and volatility of spot market prices. Companies, especially those involved in the capital intensive electric power industry, view uncertainty as a financial risk, adding unnecessary risk premiums that significantly decrease profit margins and greatly reduce the feasibility of investment and expansion. In the implementation of the Electric Power Industry Reform Act of 2001 (EPIRA), the Philippine Wholesale Electricity Spot Market (WESM) was established. In this regard, bilateral contract dominated energy transactions are augmented by a more competitive energy trading mechanism – the wholesale electricity spot market. Philippine generation companies, suppliers, aggregators and IPPs must therefore develop their own bidding strategies in order to be competitive in this market. These companies should be able to handle dispatch and bidding decisions, as well as being capable of implementing reliable trading decisions that will enable them to recover their production cost and over-all investments. This study aims to establish a strategic bidding and generation scheduling model and platform that independent power producers (IPPs) can utilize in developing their bidding strategies for a reserve co-optimized electricity spot market. Specifically, the research developed the following: (a) A Security Constrained Economic Dispatch (SCED) model which represents the market clearing engine to solve nodal prices and schedules for both energy and reserve, taking into account the interaction between energy and reserve prices in co-optimization. (b) A bidding model that determines optimum bid prices for each trading interval, using expected spot prices from the SCED model, by maximizing the probability of a bid being cleared while at the same time ensuring revenue. (c) An offline simulation tool which implements the entire strategic bidding and scheduling model and is an independent software package which has a user-friendly GUI. Various researchers have proposed bidding strategies for electricity spot markets. Each bidding strategy involves different solution methods, varying degrees of complexity and is usually applicable to specific market types. The design of electricity spot markets around the world varies depending on the intricacies of each power industry. Therefore, bidding strategies for one market may not be applicable in another. To formulate an accurate strategic bidding model, it is best to select an appropriate bidding strategy model for a certain state of the electricity spot market, with modifications as needed. Certain factors such as complexity and practicality must also be considered when choosing an appropriate bidding model. 978-1-4244-6890-4/10/$26.00 ©2010 IEEE TENCON 2010 592