Optimal demand response bidding and pricing mechanism: Application for a virtual power plant

Deregulation of electricity markets has enabled a flexible and efficient framework for generation companies to trade electricity in a competitive environment. Deregulation coupled with environmental concerns, has caused the presence of more small and medium scale renewable generation units distributed throughout the grid. The variable nature of renewable energy sources and the lack of their centralized monitoring create challenges for system operation. The idea of aggregating distributed energy resources is emerging through the concept of virtual power plants that improve generator controllability and visibility to the system operator. In this paper we present a market framework enabling a virtual power plant to participate in wholesale energy markets by offering combined services of generation and demand response. Internal and external trades are enabled by introduction of a new market structure. The formulated mathematical model captures the purposed market interactions between participants optimizing a VPP´s bidding strategy in a day-ahead market environment. The developed models maximize the virtual power plant profit with respect to the forecasted power outputs of variable generation units and provide optimal demand response pricing schemes.