Offer Stack Optimization in Electricity Pool Markets

Philip J. Neame (), Andrew B. Philpott and Geoffrey Pritchard
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Philip J. Neame: Department of Mathematical Sciences, University of Technology, Sydney, Australia
Andrew B. Philpott: Department of Engineering Science, University of Auckland, Auckland, New Zealand
Geoffrey Pritchard: Department of Statistics, University of Auckland, Auckland, New Zealand

Operations Research, 2003, vol. 51, issue 3, 397-408

Abstract: We consider a generator making offers of energy into an electricity pool market. For a given time period, it must submit an offer stack, consisting of a fixed number of quantities of energy and prices at which it wants these quantities dispatched. We assume that the generator cannot offer enough power to substantially affect the market price, so the optimal response would be to offer energy at marginal cost. However, the market rules do not permit an arbitrary function, so the problem is to find an offer stack approximating marginal cost in a way that maximizes its profit. We give optimality conditions for this problem and derive an optimization procedure based on dynamic programming. This procedure is illustrated by applying it to several examples with different costs of production.

Keywords: Natural resources; energy: electricity pool markets; Dynamic programming; applications (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (8)

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