1 Abstract—Generation scheduling is an important component of power systems operation in a market environment. Electricity demand in different areas depends on local marginal prices in the wholesale market. The paper presents a model for mid-term op- timization of electricity generation in the hydrothermal power systems. The scheduling aims to minimize total production cost. Elasticity of consumer demand is taken into account in the mod- el. A mathematical formulation of the problem supposes the ap- plication of dynamic programming method. An algorithm for the dynamic programming application is developed. Efficiency of the algorithm is demonstrated by the generation scheduling for a 14 bus system. Index Terms--Consumer demand elasticity, dynamic pro- gramming, electricity generation price, Kuhn-Tucker conditions, Lagrange multipliers, mid-term generation scheduling. I. INTRODUCTION HE market organization in any form in power industry of many countries is inevitable. To increase power genera- tion efficiency, different generation companies compete with one another to get maximum profit. Power generation costs turn out one of the fundamental components of the electric network economic efficiency. Competitiveness is the most effective mechanism of cost reduction, although it is necessary to create conditions for rational rules and infrastructure forma- tion, usage of effective forms of government regulation in the market [6]. The centralized control of power systems provides cost reduction, guarantees the best combination of different elec- tric power sources while meeting the general constraints, and allows power distribution to be optimized. The System Operator (SO) of Electric Power System (EPS) analyses electricity generation and electricity consumption for a mid-term perspective. Analysis is based on optimization of generation to get minimum of total production cost at thermal power plants (TPPs). Mid-term optimization supposes consid- eration of the EPS operation through a period from several weeks up to one year. The scheduling period is divided into the finite number of time intervals (days, weeks or months). I.A.Nechaev and S.I.Palamarchuk work in Energy Systems Institute, Ir- kutsk, Russia (e-mail: palam@isem.sei.irk.ru). R. Cherkaoui works in Swiss Federal Institute of Technology (EPFL) (e-mail: rachid.cherkaoui@epfl.ch). This study is supported by the Swiss Government Scholarship #2009.02.49 and Grant of Russian Leading Scientific School #HШ-4633.2010.8. Mid-term scheduling is important for EPS with a large contri- bution of hydroelectric power plants (HPPs) with significant storage reservoirs electricity production. Let us call the mid-term optimization problem with total production cost minimization a traditional optimization prob- lem in EPS. For this problem, HPPs are of strategic impor- tance, since they are a cheaper source of electricity. In competitive terms the traditional problem is inefficient to reflect objectives of generating companies (GC) in the market environment where they are oriented to maximum profit. Also the traditional problem doesn’t take into account consumer opportunities and needs. As a consequence, traditional prob- lem is incapable of guaranteeing optimal loading of generating capacities and the best recourses utilization. Therefore, power plant generation can be not only non-optimal in general, but also unprofitable [1]. In this article the traditional problem takes into considera- tion consumer demand elasticity. This consideration allows one to determine to what extent electricity consumption de- pends on price fluctuation. The problem statements and solu- tion algorithm of this task are shown in parts 2 and 3 of the paper. The algorithm is tested on the example of the IEEE 14 bus power system. However, the demand characteristics of con- sumers, the cost functions of TPPs and water parameters of HPPs were chosen arbitrarily. Nowadays there are numerous works on the problem of op- timal scheduling of hydrothermal systems in the wholesale market environment. The researches done by J. Bushnell [7], M.V. Pereira [4], [10], [12], H. Rudnick [8] and others are aimed at developing models of hydrothermal systems for prof- it maximization of every generating company. The paper does not consider an oligopolistic model [5] of electricity markets. Hence, the problem of profit maximization from a position of every generating company isn’t considered either. The algo- rithms presented in the paper make it possible to consider sim- ilar problems in the future. II. MATHEMATICAL STATEMENTS OF OPTIMIZATION PROBLEMS FOR MID-TERM GENERATION SCHEDULING In the paper the model of pricing based on marginal costs is considered. The prices found on the basis of marginal costs determine the economic efficiency of electric power at certain time in a certain place. They are known as the nodal (local) marginal prices. Optimal Scheduling of Hydrothermal Power Generation in Wholesale Market Environment I. Nechaev, R. Cherkaoui Senior Member, IEEE, S. Palamarchuk Senior Member, IEEE T Proc. of the Innovative Smart Grid Technologies Conf., Oct.11-13, 2010, Gothenburg, Sweden