Strategic Bidding for Minimum Power Output in the Competitive Power Market

As deregulation of the power industry is becoming a reality, there has been an intense interest in the strategic bidding for suppliers to optimize their benefits. The benefit gained by a supplier is related not only to its energy-price bid curve but also to its submitted operational parameters such as minimum output, etc. This is especially so when market size is limited because of a limited number of competitors in the market itself or due to the transmission capacity constraints. This paper addresses the study of strategic bidding for minimum output in a deregulated environment. The impact of minimum output bids on the market result is analyzed. A criterion with regard to minimum output bid to assess the outcome of competition among suppliers is derived. The method to optimize the benefit from a supplier´s viewpoint by adjusting the bids for the minimum output and price is proposed. It is shown that an individual supplier can optimize its own benefit by fine-tuning its minimum output and price when there are only a few suppliers dominating the market. A fairly thorough theoretical analysis of the bidding for minimum output is illustrated with a numerical example.