Strategic bidding by a risk-averse firm with a portfolio of renewable resources

The possibility of market power abuse in the systems with a high amount of flexible power sources (hydro units and energy storage) is believed to be very low. However, in practice strategic owners of these resources may limit the ramping rate whenever the price spikes occur. This is particularly relevant for the power systems with a high penetration of wind power, due to the high levels of uncertainty. In this paper we propose a bilevel game-theoretic model to investigate the effect of this type of strategic bidding. The lower-level is a security-constrained economic dispatch carried out by the system operator. The upper-level is a profit-maximization problem solved by a risk-averse company owning a varied portfolio of energy sources: energy storage, hydro power units, wind generators, as well as traditional generators. We represent the uncertainty affecting the decision making by introducing a set of wind power scenarios and variable competitors´ price bids. The resulting mathematical problem with equilibrium constraints (MPEC) is recast as a single-stage mixed-integer linear program (MILP) and solved with CPLEX. In the case study we demonstrate the effect of withholding the ramp-rate on the social welfare.