Power portfolio optimization in deregulated electricity markets with risk management

In a deregulated electric power system, multiple markets of different time spans with various power supply instruments exist. In view of the huge amount of power involved, complex market structures, and major uncertainties, prudent decision-making is of critical importance for a load serving entity (LSE) to maximize its profit while managing risks. This paper presents a power portfolio optimization model and the corresponding methodology to maximize the profit, manage the risks, and serve the load obligations in different markets. The problem is difficult in view of risks, various instruments with different time spans, and the coupled markets. In this paper, a risk term based on semi-variances of spot market costs is introduced, and different time resolutions are used for different instruments based on their characteristics. A decomposition and coordination methodology is developed to relax the load obligation constraints and decompose the original problem into individual instrument subproblems, and a subgradient method is used to update the multipliers. Numerical testing results show that our method effectively provides decisions for various instruments to maximize the profit, manage the risks, and balance modeling accuracy vs. computational complexity.