Optimal strategic offerings for a conventional producer in jointly cleared energy and balancing markets under high penetration of wind power production

This work, based on Stackelberg hypothesis, considers a conventional power producer exercising their dominant position in an electricity pool with high penetration of wind power production. A bi-level optimization model is used to provide optimal offer strategies for the aforementioned producer in a jointly cleared energy and reserve pool settled through an hourly auction process. The upper-level problem illustrates the expected profit optimization of the strategic producer while the lower-level problem represents the energy-only market clearing process through a two-stage stochastic program. The first stage clears the day ahead market, and the second stage presents the system operation in balancing time though a set of plausible wind power production realizations. The bi-level problem is recast into a mathematical program with equilibrium constraints which is then reformulated into a mixed integer linear program. These transformations occur using the Karush-Kuhn-Tucker optimality conditions and the strong duality theory. The suggested model provides optimal strategic offers and local marginal prices under different levels of wind penetration and network line transmission capacities.